Derivative Financial Instruments

12 Months Ended

Dec. 31, 2015

Derivative Instruments and Hedging Activities Disclosure [Abstract]

DERIVATIVE FINANCIAL INSTRUMENTS

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 prices. These instruments typically consist of put and call options in the form of costless collars or swap contracts. The Company records derivative financial instruments on its consolidated balance sheets 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 statements of operations as an unrealized gain or 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. The Company has evaluated and considered the credit standings of its 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 and natural gas 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 oil contract 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, and for any natural gas contract 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 oil or 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 oil or natural gas volume.

At December 31, 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 2016.

The following is a summary of the Company’s open costless collar contracts for oil and natural gas at December 31, 2015.

		Notional Quantity (Bbl or MMBtu)	Weighted Average Price Floor ($/Bbl or $/MMBtu)		Weighted Average Price Ceiling ($/Bbl or $/MMBtu)		Fair Value of Asset (thousands)
Commodity	Calculation Period
Oil	01/01/2016 - 12/31/2016	1,560,000	$	47.46	$	74.64	$	13,083
Natural Gas	01/01/2016 - 12/31/2016	8,400,000	$	2.75	$	3.80	3,201
Total open derivative financial instruments							$	16,284

Subsequent to December 31, 2015, the Company entered into various costless collar contracts for oil and natural gas. The costless collar contracts for oil included approximately 600,000 Bbl in 2016 with a weighted average floor price of $35.00 per Bbl and a weighted average ceiling price of $43.23 per Bbl. The Company also entered into costless collar contracts for natural gas, which included approximately 3,300,000 MMBtu in 2016, with a weighted average floor price of $2.25 per MMBtu and a weighted average ceiling price of $2.90 per MMBtu, and approximately 7,200,000 MMBtu in 2017, with a weighted average floor price of $2.25 MMBtu and a weighted average ceiling price of $3.57 MMBtu.

These derivative financial instruments are subject to master netting arrangements; all but one counterparty allow for cross-commodity master netting provided the settlements 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 sheets.

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 consolidated balance sheets as of December 31, 2015 and December 31, 2014 (in thousands).

Derivative Instruments	Gross amounts recognized			Gross amounts netted in the consolidated balance sheets			Net amounts presented in the consolidated balance sheets
December 31, 2015
Current assets	$	16,767		$	(483	)	$	16,284
Other assets	—			—			—
Current liabilities	(483		)	483			—
Other liabilities	—			—			—
Total	$	16,284		$	—		$	16,284
December 31, 2014
Current assets	$	56,255		$	(706	)	$	55,549
Other assets	—			—			—
Current liabilities	(706		)	706			—
Other liabilities	—			—			—
Total	$	55,549		$	—		$	55,549

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 (in thousands). These derivative financial instruments are not designated as hedging instruments.

	Location in	Year Ended December 31,
Type of Instrument	Statement of Operations	2015			2014			2013
Derivative Instrument
Oil	Revenues: Realized gain (loss) on derivatives	$	62,259		$	5,221		$	(2,408	)
Natural Gas	Revenues: Realized gain (loss) on derivatives	12,653			(718		)	831
Natural Gas Liquids (NGL)	Revenues: Realized gain on derivatives	2,182			519			668
Realized gain (loss) on derivatives		77,094			5,022			(909		)
Oil	Revenues: Unrealized (loss) gain on derivatives	(31,897		)	47,178			(5,319		)
Natural Gas	Revenues: Unrealized (loss) gain on derivatives	(5,440		)	9,087			(1,580		)
Natural Gas Liquids (NGL)	Revenues: Unrealized (loss) gain on derivatives	(1,928		)	2,037			(333		)
Unrealized (loss) gain on derivatives		(39,265		)	58,302			(7,232		)
Total		$	37,829		$	63,324		$	(8,141	)