Derivatives

3 Months Ended

Jun. 30, 2014

Derivatives

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., which the Company believes is an acceptable credit risk.

As of June 30, 2014 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
	July 2014 – March 2015		4,500	$	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.

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

		June 30, 2014		March 31, 2014
	Current assets:  Derivative instruments	$	-	$	-
	Noncurrent assets:  Derivative instruments		-		7,239
Total assets		$	-	$	7,239
	Current liabilities:  Derivative instruments	$	59,121	$	44,981
	Noncurrent liabilities: Derivative instruments		-		-
Total liabilities		$	59,121	$	44,981

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, 2014 and 2013:

	2014			2013
Unrealized loss on open non-hedge derivative instruments	$	(14,139	)	$	(21,057	)
Loss on settlement of non-hedge derivative instruments		(19,489	)		(6,335	)
Total loss on derivative instruments	$	(33,628	)	$	(27,392	)