Derivative Financial Instruments

12 Months Ended

Dec. 31, 2014

Derivative Financial Instruments

Derivative Financial Instruments

9. Derivative Financial Instruments

        We use financial derivative contracts to manage exposures to commodity price and interest rate fluctuations. We do not hold or issue derivative financial instruments for trading purposes.

        We manage market and counterparty credit risk in accordance with our policies and guidelines. In accordance with these policies and guidelines, our management determines the appropriate timing and extent of derivative transactions. We have included an estimate of nonperformance risk in the fair value measurement of our derivative contracts as required by ASC 820—Fair Value Measurements and Disclosures.

Oil Derivative Contracts

        The following table sets forth the volumes in barrels underlying the Company's outstanding oil derivative contracts and the weighted average Dated Brent prices per Bbl for those contracts as of December 31, 2014.

				Weighted Average Dated Brent Price per Bbl
Term	Type of Contract	MBbl		Deferred Premium Payable		Swap		Floor		Ceiling		Call
2015:
January—December	Three-way collars		4,230	$	0.46	$	—	$	87.43	$	110.00	$	133.82
January—December	Swaps with calls		2,000		—		93.59		—		—		115.00
2016:
January—December	Purchased puts		2,000	$	3.41	$	—	$	85.00	$	—	$	—
January—December	Three-way collars		2,000		—		—		85.00		110.00		135.00

        In January 2015, we entered into swap contracts and sold put contracts for 2.0 MMBbl from January 2016 through December 2016 with a fixed price of $75.00 per barrel and a short put price of $60.00 per barrel. In addition, we sold call contracts for 2.0 MMBbl from January 2017 through December 2017 with a strike price of $85.00 per barrel. The contracts are indexed to Dated Brent prices and we paid a net premium of $3.0 million.

Interest Rate Swaps Derivative Contracts

        The following table summarizes our open interest rate swaps as of December 31, 2014, whereby we pay a fixed rate of interest and the counterparty pays a variable LIBOR-based rate:

Term	Weighted Average Notional Amount		Weighted Average Fixed Rate			Floating Rate
	(In thousands)
January 2015—December 2015		45,319		2.03	%	6-month LIBOR
January 2016—June 2016		12,500		2.27	%	6-month LIBOR

        Subsequent to December 31, 2014, we entered into capped interest rate swaps for $200.0 million from January 2016 through December 2018. For $200.0 million of debt that is hedged, we expect to pay an average 1-month LIBOR rate of 1.23% if LIBOR is below 3.0%, and pay the market rate less 1.77% if LIBOR is above 3.0%, net of the capped interest rate swaps.

        Effective June 1, 2010, we discontinued hedge accounting on all interest rate derivative instruments. Therefore, from that date forward, changes in the fair value of the instruments are recognized in earnings during the period of change. The effective portions of the discontinued hedges as of May 31, 2010, are included in AOCI in the equity section of the accompanying consolidated balance sheets, and are being transferred to earnings when the hedged transaction settles. The Company expects to reclassify $0.6 million of gains from AOCI to interest expense within the next 12 months. See Note 10—Fair Value Measurements for additional information regarding the Company's derivative instruments.

        The following tables disclose the Company's derivative instruments as of December 31, 2014 and 2013 and gain/(loss) from derivatives during the years ended December 31, 2014, 2013 and 2012:

		Estimated Fair Value Asset (Liability)
		December 31,
Type of Contract	Balance Sheet Location	2014			2013
		(In thousands)
Derivatives not designated as hedging instruments:
Derivative assets:
Commodity(1)	Derivatives assets—current	$	163,275		$	—
Commodity(2)	Derivatives assets—long-term		89,210			—
Derivative liabilities:
Commodity(3)	Derivatives liabilities—current		—			(7,873	)
Interest rate	Derivatives liabilities—current		(721	)		(2,067	)
Commodity(4)	Derivatives liabilities—long-term		—			(3,144	)
Interest rate	Derivatives liabilities—long-term		(68	)		(667	)
Total derivatives not designated as hedging instruments		$	251,696		$	(13,751	)

(1)	Includes net deferred premiums payable of $1.8 million and zero related to commodity derivative contracts as of December 31, 2014 and 2013, respectively.
(2)	Includes net deferred premiums payable of $6.9 million and zero related to commodity derivative contracts as of December 31, 2014 and 2013, respectively.
(3)	Includes net deferred premiums payable of zero and $0.1 million related to commodity derivative contracts as of December 31, 2014 and 2013, respectively.
(4)	Includes net deferred premiums payable of zero and $6.5 million related to commodity derivative contracts as of December 31, 2014 and 2013, respectively.

		Amount of Gain/(Loss)
		Years Ended December 31,
Type of Contract	Location of Gain/(Loss)	2014			2013			2012
		(In thousands)
Derivatives in cash flow hedging relationships:
Interest rate(1)	Interest expense	$	1,391		$	1,527		$	(163	)
Total derivatives in cash flow hedging relationships		$	1,391		$	1,527		$	(163	)
Derivatives not designated as hedging instruments:
Commodity(2)	Oil and gas revenue	$	(11,661	)	$	(7,156	)	$	15,652
Commodity	Derivatives, net		281,853			(17,027	)		(31,490	)
Interest rate	Interest expense		(285	)		(437	)		(2,464	)
Total derivatives not designated as hedging instruments		$	269,907		$	(24,620	)	$	(18,302	)

(1)	Amounts were reclassified from AOCI into earnings upon settlement.
(2)	Amounts represent the change in fair value of our provisional oil sales contracts.

Offsetting of Derivative Assets and Derivative Liabilities

        Our derivative instruments which are subject to master netting arrangements with our counterparties only have the right of offset when there is an event of default. As of December 31, 2014 and 2013, there was not an event of default and, therefore, the associated gross asset or gross liability amounts related to these arrangements are presented on the consolidated balance sheets. Additionally, if an event of default occurred the offsetting amounts would be immaterial as of December 31, 2014 and 2013.