Derivative Financial Instruments

3 Months Ended

Mar. 31, 2012

Derivative Financial Instruments [Abstract]

Derivative Financial Instruments

NOTE G. 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 or indirectly to NYMEX WTI oil prices.

The following table sets forth the volumes in Bbls outstanding as of March 31, 2012 under the Company's oil derivative contracts and the weighted average oil prices per Bbl for those contracts:

	2012			2013		2014
Collar contracts with short puts:
Volume (Bbl) (a)		48,301			67,290		30,000
Average price per Bbl:
Ceiling	$	118.51		$	120.61	$	123.39
Floor	$	83.72		$	88.88	$	90.33
Short put	$	67.97		$	71.72	$	73.17
Collar contracts:
Volume (Bbl)		2,000			—		—
Average price per Bbl:
Ceiling	$	127.00		$	—	$	—
Floor	$	90.00		$	—	$	—
Swap contracts:
Volume (Bbl)		3,000			3,000		—
Average price per Bbl	$	79.32		$	81.02	$	—
Rollfactor swap contracts:
Volume (Bbl)		665			6,000		—
NYMEX roll price (b)	$	0.28		$	0.43	$	—
Basis swap contracts:
Index swap volume (Bbl)		13,382			—		—
Average price per Bbl (c)	$	(1.15	)	$	—	$	—

(a) Subsequent to March 31, 2012, the Company entered into additional collar contracts with short puts for 10,000 Bbls per day of the Company's 2014 production with a ceiling price of $120.93 per Bbl, a floor price of $95.00 per Bbl and a short put price of $80.00 per Bbl.

(b) 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.

(c) Basis differential 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 March 31, 2012, 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 a 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 HH prices and actual index prices at which the gas is sold.

The following table sets forth the volumes in MMBtus outstanding as of March 31, 2012 under the Company's gas derivative contracts and the weighted average gas prices per MMBtu for those contracts:

	2012			2013			2014			2015
Collar contracts with short puts:
Volume (MMBtu)		—			—			60,000			30,000
Price per MMBtu:
Ceiling	$	—		$	—		$	7.80		$	7.11
Floor	$	—		$	—		$	5.83		$	5.00
Short put	$	—		$	—		$	4.42		$	4.00
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
Swap contracts:
Volume (MMBtu)		275,000			112,500			50,000			—
Price per MMBtu	$	4.97		$	5.62		$	6.05		$	—
Basis swap contracts:
Volume (MMBtu)		136,000			142,500			115,000			—
Price per MMBtu	$	(0.34	)	$	(0.22	)	$	(0.23	)	$	—

Marketing and basis transfer derivative activities. Periodically, the Company enters into gas buy and sell marketing arrangements to fulfill firm pipeline transportation commitments. Associated with these gas marketing arrangements, the Company may enter into gas index swaps to mitigate 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 volumes in MMBtus outstanding as of March 31, 2012 under the Company's marketing and basis transfer derivative contracts and the weighted average gas prices per MMBtu for those contracts:

	Three months ended June 30,
	2012
Average Daily Gas Production Associated with Marketing Derivatives (MMBtu):
Basis swap contracts:
Index swap volume (a)		13,297
Price differential ($/MMBtu)	$	0.15
Average Daily Gas Production Associated with Basis Transfer Derivatives (MMBtu):
Basis swap contracts:
Short index swap volume (b)		1,648
NGI-So Cal Border Monthly price differential to NYMEX HH ($/MMBtu)	$	0.13
Long index swap volume (b)		(1,648	)
IF-HSC price differential to NYMEX HH ($/MMBtu)	$	(0.06	)

(a) Subsequent to March 31, 2012, the Company entered into additional marketing basis swap contracts for 30,000 MMBtus per day for May 2012 with a price of $0.28 and for 40,000 MMBtus per day for the period June through October 2012 with a price of $0.25 per MMBtu.

(b) Subsequent to March 31, 2012, the Company entered into (i) additional basis transfer short index swap contracts for 5,000 MMBtus per day for the period May through October 2012 with a price differential of $0.12 per MMBtu between NGI-So Cal Border Monthly and NYMEX HH and (ii) additional basis transfer long index swap contracts for 5,000 MMBtus per day for the period May through October 2012 with a price differential of $0.05 between IF-HSC and NYMEX HH.

Interest rates. As of March 31, 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.

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 March 31, 2012 and December 31, 2011. The following tables provide disclosure of the Company's derivative instruments:

Fair Value of Derivative Instruments as of March 31, 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	$	290,366	Derivatives - current	$	82,365
Interest rate derivatives	Derivatives - current		—	Derivatives - current		12,034
Commodity price derivatives	Derivatives - noncurrent		273,843	Derivatives - noncurrent		67,657
		$	564,209		$	162,056

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 March 31,
Relationships	AOCI into Earnings	2012			2011
		(in thousands)
Commodity price derivatives	Oil and gas revenue	$	(810	)	$	8,124
Interest rate derivatives	Interest expense		(1,698	)		(68	)
Total		$	(2,508	)	$	8,056

		Amount of Gain (Loss) Recognized in Earnings on Derivatives
Derivatives Not Designated as Hedging	Location of Gain (Loss) Recognized in	Three Months Ended March 31,
Instruments	Earnings on Derivatives	2012		2011
		(in thousands)
Commodity price derivatives	Derivative gains, net	$	88,130	$	(242,280	)
Interest rate derivatives	Derivative gains, net		3,620		(2,152	)
Total		$	91,750	$	(244,432	)

AOCI - Hedging. As of March 31, 2012 AOCI—Hedging represented net deferred losses of $1.5 million compared to net deferred losses of $3.1 million as of December 31, 2011. The AOCI—Hedging balance as of March 31, 2012 was comprised of $2.3 million of net deferred losses on the effective portions of discontinued commodity hedges and $797 thousand of associated net deferred tax benefits.

During the nine months ending December 31, 2012, the Company expects to reclassify $2.3 million of AOCI – Hedging net deferred losses to oil revenues and $797 thousand of net deferred income tax benefits from AOCI—Hedging to income tax expense.