Derivative Instruments

12 Months Ended

Dec. 31, 2012

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Instruments

Derivative Instruments

We utilize derivative instruments to mitigate our financial exposure to crude oil and natural gas price volatility as well as the volatility in interest rates attributable to our debt instruments. The derivative instruments, which are placed with financial institutions that we believe are acceptable credit risks, generally take the form of collars, swaps and swaptions. Our derivative instruments are not formally designated as hedges.

Commodity Derivatives

We utilize collars, swaps and swaptions to hedge against the variability in cash flows associated with anticipated sales of our future oil and gas production. While the use of derivative instruments limits the risk of adverse price movements, such use may also limit future revenues from favorable price movements.

The counterparty to a collar or swap contract is required to make a payment to us if the settlement price for any settlement period is below the floor or swap price for such contract. We are required to make a payment to the counterparty if the settlement price for any settlement period is above the ceiling or swap price for such contract. Neither party is required to make a payment to the other party if the settlement price for any settlement period is equal to or greater than the floor price and equal to or less than the ceiling price for such contract. A swaption contract gives our counterparties the option to enter into a fixed price swap with us at a future date. If the forward commodity price for the term of the swaption is higher than or equal to the swaption strike price on the exercise date, the counterparty will exercise its option to enter into a fixed price swap at the swaption strike price for the term of the swaption, at which point the contract functions as a fixed price swap. If the forward commodity price for the term of the swaption is lower than the swaption strike price on the exercise date, the option expires and no fixed price swap is in effect.

We determine the fair values of our commodity derivative instruments based on discounted cash flows derived from third-party quoted forward prices for NYMEX Henry Hub gas and West Texas Intermediate crude oil closing prices as of the end of the reporting period. The discounted cash flows utilize discount rates adjusted for the credit risk of our counterparties if the derivative is in an asset position, and our own credit risk if the derivative is in a liability position.

The following table sets forth our commodity derivative positions as of December 31, 2012:

		Average
		Volume Per	Weighted Average Price				Fair Value
	Instrument	Day	Floor/Swap		Ceiling		Asset		Liability
Crude Oil:		(barrels)	($/barrel)
First quarter 2013	Collars	1,000	$	90.00	$	100.00	$	119	$	—
Second quarter 2013	Collars	1,000	$	90.00	$	100.00	124		—
Third quarter 2013	Collars	1,000	$	90.00	$	100.00	123		—
Fourth quarter 2013	Collars	1,000	$	90.00	$	100.00	151		—
First quarter 2013	Swaps	2,250	$	103.51			2,244		—
Second quarter 2013	Swaps	2,250	$	103.51			2,040		—
Third quarter 2013	Swaps	1,500	$	102.77			1,248		—
Fourth quarter 2013	Swaps	1,500	$	102.77			1,296		—
First quarter 2014	Swaps	2,000	$	100.44			1,360		—
Second quarter 2014	Swaps	2,000	$	100.44			1,446		—
Third quarter 2014	Swaps	1,500	$	100.20			1,128		—
Fourth quarter 2014	Swaps	1,500	$	100.20			1,179		—
First quarter 2014	Swaption	812	$	100.00			—		356
Second quarter 2014	Swaption	812	$	100.00			—		355
Third quarter 2014	Swaption	812	$	100.00			—		355
Fourth quarter 2014	Swaption	812	$	100.00			—		355
Natural Gas:		(in MMBtu)	($/MMBtu)
First quarter 2013	Collars	10,000	$	3.50	$	4.30	187		—
Second quarter 2013	Collars	10,000	$	3.50	$	4.30	219		—
Third quarter 2013	Collars	10,000	$	3.50	$	4.30	165		—
Fourth quarter 2013	Collars	15,000	$	3.67	$	4.37	216		—
First quarter 2014	Collars	5,000	$	4.00	$	4.50	68		—
First quarter 2013	Swaps	10,000	$	4.01			587		—
Second quarter 2013	Swaps	10,000	$	4.01			504		—
Third quarter 2013	Swaps	10,000	$	4.01			391		—
Fourth quarter 2013	Swaps	5,000	$	4.04			121		—
Settlements to be received in subsequent period							1,557		—

Interest Rate Swaps

In February 2012, we entered into an interest rate swap agreement to establish variable interest rates on approximately one-third of the outstanding obligation under our 7.25% Senior Notes due 2019 (the “2019 Senior Notes”). In May 2012, we terminated this agreement and received $1.2 million in cash proceeds.

In December 2009, we entered into an interest rate swap agreement to establish variable rates on approximately one-third of the face amount of the outstanding obligation under our 10.375% Senior Notes due 2016 (the “2016 Senior Notes”). In August 2011, we terminated this agreement and received $2.9 million in cash proceeds.

As of December 31, 2012, we had no interest rate derivative instruments outstanding.

Financial Statement Impact of Derivatives

The impact of our derivatives activities on income is included in the Derivatives caption on our Consolidated Statements of Operations. The following table summarizes the effects of our derivative activities for the periods presented:

	Year Ended December 31,
	2012		2011			2010
Impact by contract type:
Commodity contracts	$	34,781	$	14,422		$	36,693
Interest rate contracts	1,406		1,229			5,213
	$	36,187	$	15,651		$	41,906
Realized and unrealized impact:
Cash received (paid) for:
Commodity contract settlements	$	28,317	$	23,562		$	33,480
Interest rate contract settlements	1,406		3,818			(662		)
	29,723		27,380			32,818
Unrealized gains (losses) attributable to:
Commodity contracts	6,464		(9,140		)	3,213
Interest rate contracts	—		(2,589		)	5,875
	6,464		(11,729		)	9,088
	$	36,187	$	15,651		$	41,906

The effects of derivative gains (losses) and cash settlements of our commodity and interest rate derivatives are reported as adjustments to reconcile net income (loss) to net cash provided by operating activities from continuing operations. These items are recorded in the Derivative contracts: Net gains and Derivative contracts: Cash settlements captions on our Consolidated Statements of Cash Flows.

The following table summarizes the fair value of our derivative instruments, as well as the locations of these instruments, on our Consolidated Balance Sheets as of the dates presented:

		Fair Values as of
		December 31, 2012				December 31, 2011
		Derivative		Derivative		Derivative		Derivative
Type	Balance Sheet Location	Assets		Liabilities		Assets		Liabilities
Commodity contracts	Derivative assets/liabilities - current	$	11,292	$	—	$	18,987	$	3,549
Interest rate contracts	Derivative assets/liabilities - current	—		—		—		—
		11,292		—		18,987		3,549
Commodity contracts	Derivative assets/liabilities - noncurrent	5,181		1,421		—		6,850
Interest rate contracts	Derivative assets/liabilities - noncurrent	—		—		—		—
		5,181		1,421		—		6,850
		$	16,473	$	1,421	$	18,987	$	10,399

As of December 31, 2012, we reported a commodity derivative asset of $16.5 million. The contracts associated with this position are with six counterparties, all of which are investment grade financial institutions, and are substantially concentrated with three of those counterparties. This concentration may impact our overall credit risk, either positively or negatively, in that these counterparties may be similarly affected by changes in economic or other conditions. We have not received any cash collateral from our counterparties with respect to our derivative asset positions. No significant uncertainties exist related to the collectability of amounts that may be owed to us by these counterparties.