Derivative Financial Instruments

9 Months Ended

Sep. 30, 2015

Derivative Instruments and Hedging Activities Disclosure [Abstract]

DERIVATIVE FINANCIAL INSTRUMENTS

From time to time, the Company uses derivative financial instruments to mitigate its exposure to commodity price risk associated with oil, natural gas and natural gas liquids (“NGL”) prices. These instruments consist of put and call options in the form of costless collar and swap contracts. The Company records derivative financial instruments in its consolidated balance sheet as either assets or liabilities 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 unrealized loss. The fair value of the Company’s derivative financial instruments is determined using industry-standard models that consider various inputs including: (i) quoted forward prices for commodities, (ii) time value of money and (iii) current market and contractual prices for the underlying instruments, as well as other relevant economic measures. RBC, Comerica Bank, The Bank of Nova Scotia and BMO Harris Financing (Bank of Montreal) (or affiliates thereof) were the counterparties for the Company’s commodity derivatives at September 30, 2015. The Company has considered the credit standings of the counterparties in determining the fair value of its 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 one or more of these collars, the Company receives from the 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 one or more of these collars, the Company pays to the 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 settlement date of that contract period. When the settlement price is below the price floor established by one or more of these collars, the Company receives from the 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 one or more of these collars, the Company pays to the counterparty an amount equal to the difference between the settlement price and the price ceiling multiplied by the contract natural gas volume.

The Company has entered into various swap contracts to mitigate its exposure to fluctuations in NGL prices, each with an established fixed price. For each calculation period, the settlement price for determining the realized gain or loss to the Company pursuant to any of these transactions is the arithmetic average of any current month for delivery on the nearby month futures contracts of the underlying commodity as stated on the “Mont Belvieu Spot Gas Liquids Prices: NON-TET prop” on the pricing date. When the settlement price is below the fixed price established by one or more of these swaps, the Company receives from the counterparty an amount equal to the difference between the settlement price and the fixed price multiplied by the contract NGL volume. When the settlement price is above the fixed price established by one or more of these swaps, the Company pays to the counterparty an amount equal to the difference between the settlement price and the fixed price multiplied by the contract NGL volume.

At September 30, 2015, the Company had various 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 2015 and 2016.

At September 30, 2015, the Company had various swap contracts open and in place to mitigate its exposure to NGL price volatility, each with a specific term (calculation period), notional quantity (volume hedged) and fixed price. Each contract is set to expire at varying times during 2015.

The following is a summary of the Company’s open costless collar contracts for oil and natural gas and open swap contracts for NGL at September 30, 2015.

Commodity	Calculation Period	Notional Quantity (Bbl/month)	Price Floor ($/Bbl)	Price Ceiling ($/Bbl)	Fair Value of Asset (Liability) (thousands)
Oil	10/01/2015 - 12/31/2015	40,000	45.00	68.75	$	246
Oil	10/01/2015 - 12/31/2015	50,000	50.00	67.85	782
Oil	10/01/2015 - 12/31/2015	20,000	80.00	100.00	2,053
Oil	10/01/2015 - 12/31/2015	20,000	80.00	101.00	2,052
Oil	10/01/2015 - 12/31/2015	20,000	83.00	96.12	2,232
Oil	10/01/2015 - 12/31/2015	20,000	83.00	97.00	2,233
Oil	10/01/2015 - 12/31/2015	20,000	85.00	99.00	2,352
Oil	10/01/2015 - 12/31/2015	20,000	85.00	100.00	2,353
Oil	10/01/2015 - 12/31/2015	20,000	85.00	105.10	2,352
Oil	10/01/2015 - 12/31/2016	40,000	55.00	68.35	5,097
Oil	01/01/2016 - 12/31/2016	40,000	43.00	77.05	1,267
Oil	01/01/2016 - 12/31/2016	50,000	45.00	77.75	2,038
Total open oil costless collar contracts					25,057

Commodity	Calculation Period	Notional Quantity (MMBtu/month)	Price Floor ($/MMBtu)	Price Ceiling ($/MMBtu)	Fair Value of Asset (Liability) (thousands)
Natural Gas	10/01/2015 - 10/31/2015	150,000	2.75	3.19	28
Natural Gas	10/01/2015 - 12/31/2015	100,000	2.75	3.05	58
Natural Gas	10/01/2015 - 12/31/2015	100,000	2.75	3.15	60
Natural Gas	10/01/2015 - 12/31/2015	100,000	2.75	3.11	59
Natural Gas	10/01/2015 - 12/31/2015	300,000	2.88	3.18	279
Natural Gas	10/01/2015 - 12/31/2015	100,000	3.75	4.36	347
Natural Gas	10/01/2015 - 12/31/2015	100,000	3.75	4.45	347
Natural Gas	10/01/2015 - 12/31/2015	100,000	3.75	4.60	347
Natural Gas	10/01/2015 - 12/31/2015	100,000	3.75	4.65	347
Natural Gas	10/01/2015 - 12/31/2015	200,000	3.75	5.04	694
Natural Gas	10/01/2015 - 12/31/2015	100,000	3.75	5.34	346
Natural Gas	01/01/2016 - 12/31/2016	200,000	2.75	3.50	409
Natural Gas	01/01/2016 - 12/31/2016	200,000	2.75	3.86	501
Natural Gas	01/01/2016 - 12/31/2016	300,000	2.75	3.95	784
Total open natural gas costless collar contracts					4,606

Commodity	Calculation Period	Notional Quantity (Gal/month)	Fixed Price ($/Gal)	Fair Value of Asset (Liability) (thousands)
Propane	10/01/2015 - 12/31/2015	150,000	1.000	239
Propane	10/01/2015 - 12/31/2015	100,000	1.030	168
Propane	10/01/2015 - 12/31/2015	68,000	1.073	123
Total open NGL swap contracts				530
Total open derivative financial instruments				$	30,193

These derivative financial instruments are subject to master netting arrangements; all but one counterparty allow for cross-commodity master netting provided the settlement dates for the commodities are the same. The Company does not present different types of commodities with the same counterparty on a net basis in its consolidated balance sheet.

The following table presents the gross asset and liability fair values of the Company’s commodity price derivative financial instruments and the location of these balances in the unaudited condensed consolidated balance sheet as of September 30, 2015 and December 31, 2014 (in thousands).

Derivative Instruments	Gross amounts recognized			Gross amounts netted in the condensed consolidated balance sheets			Net amounts presented in the condensed consolidated balance sheets
September 30, 2015
Current assets	$	29,131		$	(966	)	$	28,165
Other assets	2,685			(657		)	2,028
Current liabilities	(979		)	979			—
Other liabilities	(644		)	644			—
Total	$	30,193		$	—		$	30,193
December 31, 2014
Current assets	$	56,255		$	(706	)	$	55,549
Current liabilities	(706		)	706			—
Total	$	55,549		$	—		$	55,549

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

		Three Months Ended   September 30,						Nine Months Ended   September 30,
Type of Instrument	Location in Condensed Consolidated Statement of Operations	2015			2014			2015			2014
Derivative Instrument
Oil	Revenues: Realized gain (loss) on derivatives	$	17,056		$	(816	)	$	42,013		$	(4,523	)
Natural Gas	Revenues: Realized gain (loss) on derivatives	2,215			19			8,531			(757		)
NGL	Revenues: Realized gain (loss) on derivatives	591			96			1,602			(178		)
Realized gain (loss) on derivatives		19,862			(701		)	52,146			(5,458		)
Oil	Revenues: Unrealized gain (loss) on derivatives	6,421			14,106			(19,923		)	6,359
Natural Gas	Revenues: Unrealized gain (loss) on derivatives	808			1,933			(4,035		)	1,362
NGL	Revenues: Unrealized (loss) gain on derivatives	(496		)	254			(1,398		)	229
Unrealized gain (loss) on derivatives		6,733			16,293			(25,356		)	7,950
Total		$	26,595		$	15,592		$	26,790		$	2,492