Derivative Instruments

9 Months Ended

Sep. 30, 2013

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. Our derivative instruments are not formally designated as hedges. The disclosures included herein incorporate the requirements of Accounting Standards Update No. 2011-11, Disclosures about Offsetting Assets and Liabilities as amended by Accounting Standards Update No. 2013-01, Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities.

Commodity Derivatives

We utilize collars, swaps and swaptions, which are placed with financial institutions that we believe are acceptable credit risks, 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 September 30, 2013:

		Average
		Volume Per	Weighted Average Price				Fair Value
	Instrument	Day	Floor/Swap		Ceiling		Asset		Liability
Crude Oil:		(barrels)	($/barrel)
Fourth quarter 2013	Collars	2,400	$	91.04	$	100.02	$	—	$	707
First quarter 2014	Collars	1,500	$	93.33	102.80		112		154
Second quarter 2014	Collars	1,500	$	93.33	102.80		287		67
Fourth quarter 2013	Swaps	7,000	$	95.94			224		3,806
First quarter 2014	Swaps	7,500	$	93.86			292		3,580
Second quarter 2014	Swaps	7,500	$	93.86			767		2,363
Third quarter 2014	Swaps	8,000	$	93.18			1,041		1,841
Fourth quarter 2014	Swaps	8,000	$	93.18			1,434		1,052
First quarter 2015	Swaps	2,000	$	92.03			192		231
Second quarter 2015	Swaps	2,000	$	92.03			518		376
Third quarter 2015	Swaps	1,000	$	91.25			319		236
Fourth quarter 2015	Swaps	1,000	$	91.25			395		254
First quarter 2014	Swaption	812	$	100.00			—		111
Second quarter 2014	Swaption	812	$	100.00			—		111
Third quarter 2014	Swaption	812	$	100.00			—		112
Fourth quarter 2014	Swaption	812	$	100.00			—		112
Natural Gas:		(in MMBtu)	($/MMBtu)
Fourth quarter 2013	Collars	15,000	$	3.67	$	4.37	242		—
First quarter 2014	Collars	5,000	$	4.00	$	4.50	131		—
Fourth quarter 2013	Swaps	10,000	$	4.04			411		—
First quarter 2014	Swaps	10,000	$	4.28			407		—
Second quarter 2014	Swaps	15,000	$	4.10			433		—
Third quarter 2014	Swaps	15,000	$	4.10			344		—
Fourth quarter 2014	Swaps	5,000	$	4.50			240		—
First quarter 2015	Swaps	5,000	$	4.50			151		—
Settlements to be paid in subsequent period							—		2,608

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. As of September 30, 2013, 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 Condensed Consolidated Statements of Operations. The following table summarizes the effects of our derivative activities for the periods presented:

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2013			2012			2013			2012
Impact by contract type:
Commodity contracts	$	(24,035	)	$	(12,271	)	$	(23,208	)	$	29,844
Interest rate contracts	—			—			—			1,406
	$	(24,035	)	$	(12,271	)	$	(23,208	)	$	31,250
Cash settlements and gains (losses):
Cash received for:
Commodity contract settlements	$	(4,165	)	$	9,238		$	1,625		$	22,783
Interest rate contract settlements	—			—			—			1,406
	(4,165		)	9,238			1,625			24,189
Gains (losses) attributable to:
Commodity contracts	(19,870		)	(21,509		)	(24,833		)	7,061
Interest rate contracts	—			—			—			—
	(19,870		)	(21,509		)	(24,833		)	7,061
	$	(24,035	)	$	(12,271	)	$	(23,208	)	$	31,250

The effects of derivative gains and losses and cash settlements of our commodity and interest rate derivatives are reported as adjustments to reconcile net loss to net cash provided by operating activities. These items are recorded in the Derivative contracts section of our Condensed Consolidated Statements of Cash Flows under the Net gains and Cash settlements captions.

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

		Fair Values as of
		September 30, 2013				December 31, 2012
		Derivative		Derivative		Derivative		Derivative
Type	Balance Sheet Location	Assets		Liabilities		Assets		Liabilities
Commodity contracts	Derivative assets/liabilities - current	$	4,424	$	15,305	$	11,292	$	—
Interest rate contracts	Derivative assets/liabilities - current	—		—		—		—
		4,424		15,305		11,292		—
Commodity contracts	Derivative assets/liabilities - noncurrent	1,900		799		5,181		1,421
Interest rate contracts	Derivative assets/liabilities - noncurrent	—		—		—		—
		1,900		799		5,181		1,421
		$	6,324	$	16,104	$	16,473	$	1,421

As of September 30, 2013, we reported a commodity derivative asset of $6.3 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 neither paid to, nor received from, our counterparties any cash collateral in connection with our derivative positions. No significant uncertainties exist related to the collectability of amounts that may be owed to us by these counterparties.