Derivative Financial Instruments

12 Months Ended

Dec. 31, 2011

Derivative Financial Instruments [Abstract]

Derivative Financial Instruments

NOTE I.  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, (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 or indirectly to NYMEX WTI oil prices.

The following table sets forth the volumes in Bbls outstanding as of December 31, 2011 under the Company's oil derivative contracts and the weighted average oil prices per Bbl for those contracts:

	2012		2013		2014
Swap contracts:
Volume (Bbl)		3,000		3,000		—
Average price per Bbl	$	79.32	$	81.02	$	—
Collar contracts:
Volume (Bbl)		2,000		—		—
Average price per Bbl:
Ceiling	$	127.00	$	—	$	—
Floor	$	90.00	$	—	$	—
Collar contracts with short puts: (a)
Volume (Bbl)		41,610		34,000		10,000
Average price per Bbl:
Ceiling	$	118.24	$	119.38	$	127.46
Floor	$	82.36	$	84.35	$	87.50
Short put	$	66.52	$	66.56	$	72.50

(a) During the period from January 1, 2012 to February 24, 2012, the Company entered into additional collar contracts with short puts for (i) 8,500 Bbls per day of the Company's July through September 2012 production with a ceiling price of $120.47 per Bbl, a floor price of $95.00 per Bbl and a short put price of $80.00 per Bbl, (ii) 11,500 Bbls per day of the Company's October through December 2012 production with a ceiling price of $121.10 per Bbl, a floor price of $95.00 per Bbl and a short put price of $80.00 per Bbl, (iii) 32,250 Bbls per day of the Company's 2013 production with a ceiling price of $121.62 per Bbl, a floor price of $93.45 per Bbl and a short put price of $76.90 per Bbl and (iv) 13,000 Bbls per day of the Company's 2014 production with a ceiling price of $118.78 per Bbl, a floor price of $90.00 per Bbl and a short put price of $70.00 per Bbl.

Permian Basin roll adjustment swap derivatives. The Company uses "roll adjustment" swap derivatives to mitigate the timing risk associated with the sales price of oil in the Permian Basin. In the Permian Basin, the Company generally sells its oil at a sales price based on the calendar month average NYMEX price of oil during that month, plus an adjustment calculated as the weighted average spread between the NYMEX price for that delivery month and (i) the next month and (ii) the following month during the period when the delivery month is prompt. The Company has roll adjustment swap derivatives for 3,000 Bbls per day of March 2012 through May 2012 oil sales and 3,000 Bbls per day of oil sales for the year 2013. Under the terms of the roll adjustment swap derivatives, the Company pays the periodic variable roll adjustments and receives a fixed price of $0.28 per Bbl for March 2012 through May 2012 and $0.43 per Bbl for the year 2013. The Permian Basin roll adjustment swap derivatives are not included in the table presented above. During the period from January 1, 2012 to February 24, 2012, the Company entered into additional roll adjustment swap derivatives for 3,000 Bbls per day of 2013 oil sales, under which the Company pays the periodic variable roll adjustments and receives a fixed price of $0.43 per Bbl.

Natural gas liquids 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 December 31, 2011 the Company had NGL swap derivatives for 750 Bbls per day of 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 2012 sales with a ceiling price of $79.99 per Bbl, a floor price of $67.70 per Bbl and short put price of $55.76 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 prices and actual index prices upon which the gas is sold.

The following table sets forth the volumes in MMBtus outstanding as of December 31, 2011 under the Company's gas derivative contracts and the weighted average gas prices per MMBtu for those contracts:

	2012			2013			2014			2015
Swap contracts: (a)
Volume (MMBtu)		105,000			67,500			50,000			—
Price per MMBtu	$	5.82		$	6.11		$	6.05		$	—
Collar contracts:
Volume (MMBtu)		65,000			150,000			140,000			50,000
Price per MMBtu:
Ceiling	$	6.60		$	6.25		$	6.44		$	7.92
Floor	$	5.00		$	5.00		$	5.00		$	5.00
Collar contracts with short puts: (a)
Volume (MMBtu)		170,000			45,000			60,000			30,000
Price per MMBtu:
Ceiling	$	7.92		$	7.49		$	7.80		$	7.11
Floor	$	6.07		$	6.00		$	5.83		$	5.00
Short put	$	4.50		$	4.50		$	4.42		$	4.00
Basis swap contracts:
Volume (MMBtu)		136,000			142,500			115,000			—
Price per MMBtu	$	(0.34	)	$	(0.22	)	$	(0.23	)	$	—

(a) During the period from January 1, 2012 to February 24, 2012, the Company (i) entered into offsetting swap contracts for 20,000 MMBtus per day of the Company's March 2012 production with a fixed price of $2.41, (ii) converted 95,000 MMBtus per day of the Company's February through December 2012 collar contracts with short puts to swap contracts with a fixed price of $4.47 per MMBtu , (iii) converted 75,000 MMBtus per day of the Company's March through December 2012 collar contracts with short puts to swap contracts with a fixed price of $4.41 per MMBtu and (iii) converted 45,000 MMBtus per day of the Company's 2013 collar contracts with short puts to swap contracts with a fixed price of $4.88 per MMbtu.

Diesel prices. As of December 31, 2011, the Company had diesel derivative swap contracts for 500 Bbls per day for 2012 at an average per Bbl fixed price of $119.49. The diesel derivative swap contracts are priced at an index that is highly correlated to the prices that the Company incurs to fuel its drilling rigs, fracture stimulation fleet equipment and well servicing equipment. The Company purchases diesel derivative swap contracts to mitigate fuel price risk. Subsequent to December 31, 2011, the Company terminated all diesel derivative swap contracts and received cash proceeds of $1.8 million associated with the termination.

Interest rates. As of December 31, 2011, the Company is a party to interest rate derivative contracts that lock in, through July 2012, a fixed forward 10-year annual interest rate of 3.06 percent on $200 million notional amount of debt.

Tabular disclosure of derivative fair value. All of the Company's derivatives are accounted for as non-hedge derivatives as of December 31, 2011 and 2010. The following tables provide disclosure of the Company's derivative instruments:

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
Interest rate derivatives	Derivatives - noncurrent		—	Derivatives - noncurrent		—
		$	506,177		$	132,078
Fair Value of Derivative Instruments as of December 31, 2010
	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	$	167,406	Derivatives - current	$	87,741
Interest rate derivatives	Derivatives - current		11,903	Derivatives - current		886
Commodity price derivatives	Derivatives - noncurrent		152,731	Derivatives - noncurrent		64,829
Interest rate derivatives	Derivatives - noncurrent		15,762	Derivatives - noncurrent		9,227
Total derivatives not designated as hedging instruments		$	347,802		$	162,683

(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.

	Amount of Gain/(Loss) Recognized in AOCI on Effective Portion
	Year Ended December 31,
Derivatives in Cash Flow Hedging Relationships	2011		2010		2009
	(in thousands)
Interest rate derivatives	$	—	$	—	$	(433	)
Commodity price derivatives		—		—		13,407
Total	$	—	$	—	$	12,974

	Location of Gain/(Loss)	Amount of Gain/(Loss) Reclassified from AOCI into Earnings
	Reclassified from AOCI	Year Ended December 31,
Derivatives in Cash Flow Hedging Relationships	into Earnings	2011			2010			2009
		(in thousands)
Interest rate derivatives	Interest expense	$	(282	)	$	(1,698	)	$	(6,835	)
Interest rate derivatives	Derivative gains (losses), net		—			(2,465	)		—
Commodity price derivatives	Oil and gas revenue		32,918			89,040			121,066
Total		$	32,636		$	84,877		$	114,231

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,
		2011		2010		2009
		(in thousands)
Interest rate derivatives	Derivative gains (losses), net	$	3,098	$	36,597	$	(15,423	)
Commodity price derivatives	Derivative gains (losses), net		389,654		414,302		(180,134	)
Total		$	392,752	$	450,899	$	(195,557	)

AOCI - Hedging. The effective portions of deferred cash flow hedge gains and losses, net of associated taxes are reflected in AOCI-Hedging as of December 31, 2011 and 2010, and are being transferred to oil revenue (for deferred commodity hedge losses) and to interest expense (for deferred interest rate hedge gains and losses) in the same periods in which the hedged transactions are recorded in earnings. In accordance with the change to the mark-to-market method of accounting on February 1, 2009, the Company recognizes changes in the fair values of its derivative contracts as gains or losses in the earnings of the periods in which the changes occur.

As of December 31, 2011, AOCI - Hedging represented net deferred losses of $3.1 million compared to net deferred gains of $7.4 million as of December 31, 2010. The AOCI - Hedging balance as of December 31, 2011 was comprised of $3.1 million and $1.7 million of net deferred losses on the effective portions of discontinued commodity and interest rate hedges, respectively, offset partially by $1.7 million of associated net deferred tax benefits.

During the 12 months ending December 31, 2012, the Company expects to reclassify $3.1 million of AOCI – Hedging net deferred losses to oil revenues and $317 thousand of AOCI – Hedging net deferred losses to interest expense. The Company also expects to reclassify $1.3 million of net deferred income tax benefits associated with hedge derivatives during the 12 months ending December 31, 2012 from AOCI – Hedging to income tax benefit.