Derivative Financial Instruments

3 Months Ended

Mar. 31, 2012

Derivative Financial Instruments [Abstract]

Derivative Financial Instruments

NOTE 8 — DERIVATIVE FINANCIAL INSTRUMENTS

From time to time, the Company uses derivative financial instruments to mitigate its exposure to commodity price risk associated with oil and natural gas prices. These instruments consist of put and call options in the form of costless collars. The Company records derivative financial instruments on its balance sheet as either an asset or a liability measured at fair value. The Company has elected not to apply hedge accounting for its existing derivative financial instruments. As a result, the Company recognizes the change in derivative fair value between reporting periods currently in its consolidated statement of operations as an unrealized gain or loss. The fair value of the Company's derivative financial instruments is determined using purchase and sale information available for similarly traded securities. The Company has evaluated the credit standing of its single counterparty, Comerica Bank, in determining the fair value of these derivative financial instruments.

The Company has entered into various costless collar contracts to mitigate its exposure to fluctuations in oil prices, each with an established price floor and ceiling. For each calculation period, the specified price for determining the realized gain or loss pursuant to any of these transactions is the arithmetic average of the settlement prices for the NYMEX West Texas Intermediate oil futures contract for the first nearby month corresponding to the calculation period's calendar month. When the settlement price is below the price floor established by these collars, the Company receives from Comerica Bank, as counterparty, an amount equal to the difference between the settlement price and the price floor multiplied by the contract oil volume. When the settlement price is above the price ceiling established by these collars, the Company pays to Comerica, as counterparty, an amount equal to the difference between the settlement price and the price ceiling multiplied by the contract oil volume.

The Company has entered into various costless collar transactions for natural gas, each with an established price floor and ceiling. For each calculation period, the specified price for determining the realized gain or loss to the Company pursuant to any of these transactions is the settlement price for the NYMEX Henry Hub natural gas futures contract for the delivery month corresponding to the calculation period's calendar month for the last day of that contract period. When the settlement price is below the price floor established by these collars, the Company receives from Comerica Bank, as counterparty, an amount equal to the difference between the settlement price and the price floor multiplied by the contract natural gas volume. When the settlement price is above the price ceiling established by these collars, the Company pays to Comerica, as counterparty, an amount equal to the difference between the settlement price and the price ceiling multiplied by the contract natural gas volume.

At March 31, 2012, the Company had multiple costless collar contracts open and in place to mitigate its exposure to oil and natural gas price volatility, each with a specific term (calculation period), notional quantity (volume hedged) and price floor and ceiling. Each contract is set to expire at varying times during 2012, 2013 and 2014.

The following is a summary of the Company's open costless collar contracts for oil and natural gas at March 31, 2012.

Commodity	Calculation Period	Notional Quantity (Bbl/month)		Price Floor ($/Bbl)		Price Ceiling ($/Bbl)		Fair Value of Asset (Liability)
Oil	04/01/2012 – 12/31/2012		20,000		90.00		104.20	$	(854,699	)
Oil	04/01/2012 – 12/31/2012		10,000		90.00		108.00		(255,085	)
Oil	04/01/2012 – 12/31/2012		10,000		90.00		109.50		(205,318	)
Oil	04/01/2012 – 06/30/2012		20,000		90.00		113.75		(18,545	)
Oil	04/01/2012 – 12/31/2012		20,000		90.00		111.00		(320,596	)
Oil	04/01/2012 – 03/31/2013		20,000		90.00		110.00		(542,988	)
Oil	07/01/2012 – 12/31/2012		20,000		90.00		111.90		(237,974	)
Oil	07/01/2012 – 12/31/2012		20,000		95.00		116.00		62,891
Oil	01/01/2013 – 12/31/2013		20,000		85.00		102.25		(1,735,790	)
Oil	01/01/2013 – 12/31/2013		20,000		90.00		115.00		(82,408	)
Oil	01/01/2013 – 12/31/2013		20,000		85.00		110.40		(816,436	)
Oil	01/01/2013 – 12/31/2013		20,000		85.00		108.80		(904,064	)
Oil	01/01/2013 – 06/30/2014		8,000		90.00		114.00		(2,101	)
Oil	01/01/2013 – 06/30/2014		12,000		90.00		115.50		99,629
Total Oil									(5,813,484	)

Commodity	Calculation Period	Notional Quantity (MMBtu/month)		Price Floor ($/MMBtu)		Price Ceiling ($/MMBtu)		Fair Value of Asset (Liability)
Natural Gas	04/01/2012 – 12/31/2012		300,000		4.50		5.60		5,430,640
Natural Gas	04/01/2012 – 07/31/2013		150,000		4.50		5.75		4,005,490
Natural Gas	04/01/2012 – 12/31/2012		150,000		4.25		6.17		2,389,635
Total Natural Gas									11,825,765
Total open costless collar contracts								$	6,012,281

The following table summarizes the location and aggregate fair value of all derivative financial instruments recorded in the consolidated balance sheets for the periods presented. These derivative financial instruments are not designated as hedging instruments.

	$(0,000,000		$(0,000,000			$(0,000,000
Type of Instrument	Location in Balance Sheet	March 31, 2012			December 31, 2011
Derivative Instrument
Oil	Current liabilities: Derivative instruments	$	(3,089,211	)	$	(171,252	)
Oil	Long-term liabilities: Derivative instruments		(2,724,273	)		(382,848	)
Natural Gas	Current assets: Derivative instruments		10,908,380			8,988,767
Natural Gas	Other assets: Derivative instruments		917,385			847,267
Total		$	6,012,281		$	9,281,934

The following table summarizes the location and aggregate fair value of all derivative financial instruments recorded in the consolidated statements of operations for the periods presented. These derivative financial instruments are not designated as hedging instruments.

	$(0,000,000		$(0,000,000			$(0,000,000
		Three Months Ended March 31,
Type of Instrument	Location in Statement of Operations	2012			2011
Derivative Instrument
Natural Gas	Revenues: Realized gain on derivatives	$	3,062,700		$	1,849,750
Realized gain on derivatives			3,062,700			1,849,750
Oil	Revenues: Unrealized loss on derivatives		(5,259,384	)		—
Natural Gas	Revenues: Unrealized gain (loss) on derivatives		1,989,732			(1,668,115	)
Unrealized loss on derivatives			(3,269,652	)		(1,668,115	)
Total		$	(206,952	)	$	181,635