Derivatives

3 Months Ended

Jun. 30, 2013

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivatives

8. Derivatives

All derivative financial instruments are recorded at fair value. The Company has not designated its derivative instruments as hedges for accounting purposes and, as a result, marks its derivative instruments to fair value and recognizes the realized and unrealized changes in fair value in the consolidated statements of operations under the caption “Loss on derivative instruments.”

The Company has used price swap contracts to reduce price volatility associated with certain of its oil sales. With respect to the Company’s fixed price swap contracts, the counterparty is required to make a payment to the Company if the settlement price for any settlement period is less than the swap price, and the Company is required to make a payment to the counterparty if the settlement price for any settlement period is greater than the swap price. The Company’s derivative contracts are based upon reported settlement prices on commodity exchanges, with crude oil derivative settlements based on New York Mercantile Exchange West Texas Intermediate (“NYMEX WTI”) pricing. The counterparty to the Company’s derivative contract is Merrill Lynch Commodities, Inc., who the Company believes is an acceptable credit risk.

As of June 30, 2013 the Company had the following open crude oil derivative positions with respect to future production based on NYMEX WTI pricing:

	Volume (bbls)		Fixed Swap Price
Production Period
June 2013 - March 2015		11,000	$	90.00

The fair value of swaps is generally determined using established index prices and other sources which are based upon, among other things, futures prices and time to maturity. These fair values are recorded by netting asset and liability positions that are with the same counterparty and are subject to contractual terms which provide for net settlement. The net amounts are classified as current or noncurrent based on their anticipated settlement dates.

The net fair value of the Company’s derivative assets and liabilities and their locations on the consolidated balance sheet are as follows:

	2013		2012
Current assets:  Derivative instruments	$	-	$	-
Noncurrent assets:  Derivative instruments		6,167	$	-
Total assets	$	6,167	$	-
Current liabilities:  Derivative instruments	$	27,224	$	-
Noncurrent liabilities: Derivative instruments		-	$	-
Total liabilities	$	27,224	$	-

None of the Company’s derivatives have been designated as hedges. As such, all changes in fair value are immediately recognized in earnings. The following summarizes the loss on derivative instruments included in the consolidated statements of operations three months ended June 30, 2013 and 2012:

	2013			2012
Unrealized loss on open non-hedge derivative instruments	$	(21,057	)	$	-
Loss on settlement of non-hedge derivative instruments		(6,335	)	$	-
Total loss on derivative instruments	$	(27,392	)	$	-