Derivative Contracts

12 Months Ended

Dec. 31, 2012

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Contracts

Derivative Contracts

QEP has established policies and procedures for managing commodity price volatility through the use of derivative instruments. In the normal course of business, QEP uses commodity derivative instruments to reduce the impact of downward movements in commodity prices on cash flow, returns on capital, and other financial results. However, these instruments typically limit gains from favorable price movements. The volume of production subject to commodity derivative instruments and the mix of the instruments are frequently evaluated and adjusted by management in response to changing market conditions. QEP may enter into commodity derivative contracts for up to 100% of forecasted production from proved reserves. In addition, QEP may enter into commodity derivative contracts on a portion of its extracted NGL volumes in its midstream business and a portion of its natural gas sales and purchases for marketing transactions. QEP does not enter into commodity derivative instruments for speculative purposes.

QEP uses commodity derivative instruments known as fixed-price swaps and costless collars to realize a known price or range of prices for a specific volume of production delivered into a regional sales point. Costless collars are combinations of put and call options that have a floor price and a ceiling price and payments are made or received only if the settlement price is outside the range between the floor and ceiling prices. QEP's commodity derivative instruments do not require the physical delivery of natural gas, crude oil, or NGL between the parties at settlement. Swap and costless collar transactions are settled in cash with one party paying the other for the net difference in prices, multiplied by the contract volume, for the settlement period. Natural gas price derivative instruments are typically structured as fixed-price swaps at regional price indices. Oil price derivative instruments are typically structured as NYMEX fixed-price swaps based at Cushing, Oklahoma. NGL price derivative instruments are typically structured as Mont Belvieu, Texas fixed-price swaps.

QEP enters into commodity derivative transactions that do not have commodity margin requirements or collateral provisions that would require payments prior to the scheduled settlement dates. Commodity derivative contract counterparties are normally financial institutions and energy trading firms with investment-grade credit ratings. QEP routinely monitors and manages its exposure to counterparty risk by requiring specific minimum credit standards for all counterparties and avoids concentration of credit exposure by transacting with multiple counterparties.

Effective January 1, 2012, QEP elected to de-designate all of its natural gas, crude oil and NGL derivative contracts that were previously designated as cash flow hedges and discontinue hedge accounting prospectively. As a result of discontinuing hedge accounting, the mark-to-market values at December 31, 2011, were fixed in AOCI as of the de-designation date and are being reclassified into the Consolidated Statement of Operations as the transactions settle and affect earnings. At December 31, 2012, AOCI consisted of $123.5 million ($77.6 million after tax) of unrealized gains. During 2012, $171.1 million unrealized gains, after tax, were reclassified from AOCI into the Consolidated Statement of Operations in "Realized and unrealized gains on derivative contracts" as the transactions settled. QEP expects to reclassify into earnings from AOCI the remaining fixed value related to de-designated natural gas, oil and NGL hedges during 2013. Currently, QEP recognizes all gains and losses from changes in the fair value of natural gas, oil and NGL derivative contracts immediately in earnings rather than deferring any such amounts in AOCI. All commodity derivative instruments are recorded on the Consolidated Balance Sheets as either assets or liabilities measured at their fair values. All realized and unrealized gains and losses from derivative instruments incurred after January 1, 2012, are presented in the Consolidated Statement of Operations in "Realized and unrealized gains on derivative contracts" below operating income.

QEP also uses interest rate swaps to mitigate a portion of its exposure to interest rate volatility risk. During the second quarter of 2012, QEP entered into variable-to-fixed interest rate swap agreements having a combined notional principal amount of $300.0 million to minimize the interest rate volatility risk associated with its $300.0 million term loan. QEP locked in a fixed interest rate in exchange for a variable interest rate indexed to the one-month LIBOR rate. The interest rate swaps are valued at mark-to-market, settle monthly and will mature in March of 2017.

QEP Energy Derivative Contracts

The following table sets forth QEP Energy's quantities and average prices for its commodity derivative contracts as of December 31, 2012:

				Swaps
Year	Type of Contract	Index	Total Volumes	Average price per unit
			(in millions)
Natural gas sales			(MMBtu)
2013	Swap	NYMEX	51.1	$	3.79
2013	Swap	IFNPCR	65.7	$	5.66
2014	Swap	NYMEX	18.3	$	4.21
Oil sales			(Bbls)
2013	Swap	NYMEX WTI	5.1	$	98.48
2014	Swap	NYMEX WTI	1.8	92.72

QEP Marketing Derivative Contracts

QEP Marketing enters into commodity derivative transactions to lock in a margin on natural gas volumes placed into storage and for marketing transactions in which QEP Marketing is required to sell gas volumes at a fixed price. The following table sets forth QEP Marketing's volumes and swap prices for its commodity derivative contracts as of December 31, 2012:

Year	Type of Contract	Index	Total Volumes	Average Swap price per MMBtu
			(in millions)
Natural gas sales			(MMBtu)
2013	Swap	IFNPCR	4.0	$	3.78
Natural gas purchases			(MMBtu)
2013	Swap	IFNPCR	0.2	$	2.88
2014	Swap	IFNPCR	0.1	$	3.02

QEP Resources Derivative Contracts

In the second quarter of 2012, QEP Resources entered into interest rate swap agreements to effectively lock in a fixed interest rate on debt outstanding under its Term Loan. The following table sets forth QEP Resources' notional amounts and interest rates for its interest rate swaps outstanding as of December 31, 2012:

Notional amount	Type of Contract	Maturity	Fixed Rate Paid	Variable Rate Received
(in millions)
$300.0	Swap	March 2017	1.07%	One month LIBOR

QEP Derivative Financial Statement Presentation

The following table presents the balance sheet location of QEP's outstanding derivative contracts on a gross contract basis as opposed to the net contract basis presentation in the Consolidated Balance Sheets and the related fair values at the balance sheet dates:

		Gross asset derivative instruments fair value				Gross liability derivative instruments fair value
		December 31,
	Balance Sheet line item	2012		2011		2012		2011
		(in millions)				(in millions)
Current:
Commodity	Fair value of derivative contracts	$	189.7	$	284.1	$	1.0	$	11.7
Interest rate swaps	Fair value of derivative contracts	—		—		2.6		—
Long-term:
Commodity	Fair value of derivative contracts	4.2		123.5		0.1		—
Interest rate swaps	Fair value of derivative contracts	—		—		3.6		—
Total derivative instruments		$	193.9	$	407.6	$	7.3	$	11.7

The effects and location of the change in fair value and settlement of QEP's derivative contracts on the Consolidated Statements of Operations are summarized in the following tables:

Derivative instruments not designated as cash flow hedges (1)	Year Ended December 31,
	2012			2011			2010
Realized gain (loss) on commodity derivative contracts
QEP Energy
Natural gas derivative contracts	$	341.9		$	(117.7	)	$	(121.7	)
Oil derivative contracts	14.4			—			—
NGL derivative contracts	10.2			—			—
QEP Field Services
NGL derivative contracts	8.4			—			—
QEP Marketing
Natural gas derivative contracts	5.1			—			—
Total realized gain (loss) on commodity derivative contracts	380.0			(117.7		)	(121.7		)
Unrealized gain (loss) on commodity derivative contracts
QEP Energy
Natural gas derivative contracts	37.8			117.7			121.7
Oil derivative contracts	29.0			—			—
NGL derivative contracts	1.6			—			—
QEP Field Services
NGL derivative contracts	—			—			—
QEP Marketing
Natural gas derivative contracts	0.9			—			—
Total unrealized gain on commodity derivative contracts	69.3			117.7			121.7
Total realized and unrealized gain on commodity derivative contracts	$	449.3		$	—		$	—
Realized gain (loss) on interest rate swaps
Realized loss on interest rate swaps	$	(1.3	)	$	—		$	—
Unrealized gain (loss) on interest rate swaps
Unrealized loss on interest rate swaps	(6.1		)	—			—
Total realized and unrealized loss on interest rate swaps	$	(7.4	)	$	—		$	—
Total net realized gain on derivative contracts	$	378.7		$	(117.7	)	$	(121.7	)
Total net unrealized gain on derivative contracts	$	63.2		$	117.7		$	121.7
Grand Total	$	441.9		$	—		$	—

____________________________

⁽¹⁾ Gains and losses on derivatives not designated as cash flow hedges, are included in earnings in "Realized and unrealized gains on derivative contracts" on the Consolidated Statement of Operations.

The following table presents the change in the fair value and settlement of QEP's derivative contracts that were designated as cash flow hedges in 2011 and 2010:

Derivative instruments classified as cash flow hedges	Location of gain (loss) recognized in earnings	December 31,
		2012		2011			2010
Commodity derivatives
Gain on derivative instruments for the effective portion of hedge recognized in AOCI	Accumulated other comprehensive income	$	—	$	350.8		$	565.8
Gain reclassified from AOCI into income for effective portion of hedge	Natural gas sales	—		305.5			353.8
Gain reclassified from AOCI into income for effective portion of hedge	Oil sales	—		1.6			(8.7		)
Gain reclassified from AOCI into income for effective portion of hedge	NGL sales	—		(0.2		)	—
Gain reclassified from AOCI into income for effective portion of hedge	Marketing purchases	—		4.3			3.1
Gain recognized in income for the ineffective portion of hedges	Interest and other income	—		0.1			0.2

The Company estimates that the remaining derivative contracts that were outstanding in AOCI at December 31, 2012, with a fixed fair value of $77.6 million after tax, will be settled and reclassified from AOCI to the Consolidated Statements of Operations during the next twelve months.