Derivative Instruments

6 Months Ended

Jun. 30, 2013

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Instruments

8. Derivative Instruments

The Company uses various types of derivative instruments to manage its exposure to commodity price risk and to provide a level of certainty in its forward cash flows supporting its capital expenditure plan. The derivative instruments typically used are fixed-rate swaps, costless collars, puts, calls and basis differential swaps. Under these derivative instruments, payments are received or made based on the differential between a fixed and a variable commodity price. These agreements are settled in cash at termination, expiration or exchanged for physical delivery contracts. The Company’s current long-term strategy is to manage exposure for a substantial, but varying, portion of forecasted production up to 60 months. The derivative instruments are carried at fair value in the consolidated balance sheets, with changes in fair value recognized as gain (loss) on derivative instruments, net in the consolidated statements of income for the period in which the changes occur.

The fair value of derivative instruments at June 30, 2013 and December 31, 2012 was a net asset of $32.3 million and $29.2 million, respectively. The following sets forth a summary of the distribution of net fair value of the Company’s derivative instruments:

Counterparty	June 30, 2013		December 31, 2012
Credit Suisse	38	%	40	%
Societe Generale	35	%	22	%
Wells Fargo	13	%	2	%
BNP Paribas	13	%	33	%
BBVA Compass	1	%	3	%
Total	100	%	100	%

Master netting agreements are in place with each of these counterparties. Because the counterparties are investment grade financial institutions, the Company believes it has minimal credit risk and accordingly does not currently require its counterparties to post collateral to support the asset positions of its derivative instruments. As such, the Company is exposed to credit risk to the extent of nonperformance by the counterparties to its derivative instruments. Although the Company does not currently anticipate such nonperformance, it continues to monitor the financial viability of its counterparties. Because Credit Suisse, BBVA Compass, Wells Fargo, and Societe Generale are lenders in the Company’s revolving credit facility, the Company is not required to post collateral with respect to derivative instruments in a net liability position with these counterparties as the contracts are secured by the revolving credit facility. BNP Paribas may require the Company to post collateral with respect to derivative instruments in a net liability position. The Company had no derivative instruments in a net liability position with any counterparty at June 30, 2013 and December 31, 2012.

The following sets forth a summary of the Company’s natural gas derivative positions at average NYMEX prices as of June 30, 2013:

Period	Volumes (in MMBtu)	Weighted Average Floor Price ($/MMBtu)		Weighted Average Ceiling Price ($/MMBtu)
2013	10,120,000	$	4.58	$	4.58
2014	18,250,000	$	4.07	$	4.36
2015	3,650,000	$	4.33	$	4.33

The following sets forth a summary of the Company’s crude oil derivative positions at average NYMEX prices as of June 30, 2013:

Period	Volumes (in Bbls)	Weighted Average Floor  Price ($/Bbl)		Weighted Average Ceiling  Price ($/Bbl)
2013	1,766,400	$	90.17	$	100.87
2014	3,375,500	$	90.59	$	96.99
2015	1,806,750	$	89.41	$	94.96
2016	244,000	$	85.00	$	104.00

In connection with the crude oil derivative instruments above, the Company has entered into protective put spreads. For example, during 2014, at market prices below the short put price of $65.00, the floor price becomes the market price plus the put spread of $20.00 on 182,500 of the 3,375,500 Bbls and the remaining 3,193,000 Bbls would have a floor price of $90.59.

Period	Volumes (in Bbls)	Weighted Average Short Put  Price ($/Bbl)		Weighted Average Put Spread ($/Bbl)
2014	182,500	$	65.00	$	20.00
2015	365,000	$	65.00	$	20.00
2016	244,000	$	65.00	$	20.00

For the three and six months ended June 30,2013 and 2012, the Company recorded the following related to its oil and gas derivative instruments:

	Three Months Ended June 30,				Six Months Ended June 30,
	2013		2012		2013		2012
	(In thousands)
Realized gain (loss) on derivative instruments, net	$	2,291	$	9,962	$	8,006	$	21,095
Unrealized gain (loss) on derivative instruments, net	23,435		27,928		3,166		20,598
Gain (loss) on derivative instruments, net	$	25,726	$	37,890	$	11,172	$	41,693