Derivatives and Financial Instruments

9 Months Ended

Sep. 30, 2016

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivatives and Financial Instruments

DERIVATIVES AND FINANCIAL INSTRUMENTS

The Partnership’s ongoing operations expose it to changes in the market price for oil and natural gas. To mitigate the inherent commodity price risk associated with its operations, the Partnership uses oil and natural gas derivative instruments. From time to time, such instruments may include fixed-price-swap contracts, fixed price contracts, costless collars, and other contractual arrangements. The Partnership enters into oil and natural gas derivative instrument contracts that contain netting arrangements with each counterparty. The Partnership does not enter into derivative instruments for speculative purposes.

As of September 30, 2016, the Partnership’s open derivative contracts consisted of only fixed-price-swap contracts. A fixed-price-swap contract between the Partnership and the counterparty specifies a fixed commodity price and a future settlement date. The Partnership will receive from, or pay to, the counterparty the difference between the fixed-swap price and the market price on the settlement date. We have not designated any of our contracts as fair value or cash flow hedges. Accordingly, the changes in fair value of the contracts are included in the consolidated statement of operations in the period of the change. All derivative gains and losses from our derivative contracts have been recognized in “Revenue” on our consolidated statements of operations. All derivative instruments that have not yet been settled in cash are reflected as either derivative assets or liabilities in the Partnership’s accompanying consolidated balance sheets as of September 30, 2016 and December 31, 2015. See Note 6 – Fair Value Measurement for further discussion.

The table below summarizes the fair value and classification of the Partnership’s derivative instruments:

As of September 30, 2016
Classification	Balance Sheet Location	Gross Fair Value		Effect of Counterparty Netting			Net Carrying Value on Balance Sheet
				(In thousands)
Assets:
Current asset	Commodity derivative assets	$	15,269	$	(1,984	)	$	13,285
Long-term asset	Deferred charges and other long-term assets	73		(50		)	23
Total assets		$	15,342	$	(2,034	)	$	13,308
Liabilities:
Current liability	Commodity derivative liabilities	$	2,121	$	(1,984	)	$	137
Long-term liability	Commodity derivative liabilities	202		(50		)	152
Total liabilities		$	2,323	$	(2,034	)	$	289

As of December 31, 2015
Classification	Balance Sheet Location	Gross Fair Value		Effect of Counterparty Netting		Net Carrying Value on Balance Sheet
				(In thousands)
Assets:
Current asset	Commodity derivative assets	$	48,260	$	—	$	48,260
Long-term asset	Deferred charges and other long-term assets	16,274		—		16,274
Total assets		$	64,534	$	—	$	64,534
Liabilities:
Current liability	Commodity derivative liabilities	$	—	$	—	$	—
Long-term liability	Commodity derivative liabilities	—		—		—
Total liabilities		$	—	$	—	$	—

Changes in the fair values of the Partnership’s derivative instruments (both assets and liabilities) are presented on a net basis in the accompanying consolidated statements of operations. Changes in the fair value of the Partnership’s commodity derivative instruments (both assets and liabilities) are as follows:

	For the Nine Months Ended September 30,
Derivatives not designated as hedging instruments	2016			2015
	(In thousands)
Beginning fair value of commodity derivative instruments	$	64,534		$	37,471
Gain (loss) on oil derivative instruments	(8,906		)	37,305
Gain (loss) on natural gas derivative instruments	(3,389		)	20,145
Net cash received on settlements of oil derivative    instruments	(23,034		)	(32,274		)
Net cash received on settlements of natural gas    derivative instruments	(16,186		)	(14,258		)
Net change in fair value of commodity derivative    instruments	(51,515		)	10,918
Ending fair value of commodity derivative instruments	$	13,019		$	48,389

The Partnership had the following open derivative contracts for oil as of September 30, 2016:

				Range (Per Bbl)
Period and Type of Contract	Volume (Bbl)	Weighted Average (Per Bbl)		Low		High
Oil Swap Contracts:
2016
Third Quarter	190,000	$	54.32	$	35.74	$	62.53
Fourth Quarter	598,000	54.68		36.31		63.07
2017
First Quarter	364,000	$	62.69	$	52.73	$	63.65
Second Quarter	339,000	54.00		53.49		54.38

The Partnership had the following open derivative contracts for natural gas as of September 30, 2016:

				Range (Per MMBtu)
Period and Type of Contract	Volume (MMBtu)	Weighted Average (Per MMBtu)		Low		High
Natural Gas Swap Contracts:
2016
Fourth Quarter	8,820,000	$	3.11	$	2.29	$	3.41
2017
First Quarter	8,040,000	$	3.42	$	3.08	$	3.52
Second Quarter	7,550,000	3.10		2.85		3.18
Third Quarter	6,820,000	2.97		2.90		3.12
Fourth Quarter	6,170,000	3.08		2.92		3.29

The Partnership entered into the following derivative contracts for oil subsequent to September 30, 2016:

	Volume (Bbl)	Weighted Average (Per Bbl)		Range (Per Bbl)
Period and Type of Contract				Low		High
Oil Swap Contracts:
2017
First Quarter	30,000	$	50.77	$	50.34	$	51.20
Second Quarter	66,000	51.69		51.45		51.96
Third Quarter	396,000	52.63		52.04		53.24
Fourth Quarter	396,000	53.12		52.57		53.67

The Partnership entered into the following derivative contracts for natural gas subsequent to September 30, 2016:

	Volume (MMBtu)	Weighted Average (Per MMBtu)		Range (Per MMBtu)
Period and Type of Contract				Low		High
Natural Gas Swap Contracts:
2016
Fourth Quarter	540,000	$	3.02	$	2.89	$	3.15
2017
First Quarter	810,000	$	3.27	$	3.23	$	3.32
Second Quarter	750,000	2.98		2.96		3.00
Third Quarter	910,000	3.03		3.01		3.10
Fourth Quarter	870,000	3.11		3.03		3.28