Derivative Instruments

3 Months Ended

Mar. 31, 2014

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 and, from time to time, the volatility in interest rates attributable to our debt instruments. Our derivative instruments are not formally designated as hedges.

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 March 31, 2014:

		Average
		Volume Per	Weighted Average Price				Fair Value
	Instrument	Day	Floor/Swap		Ceiling		Asset		Liability
Crude Oil:		(barrels)	($/barrel)
Second quarter 2014	Collars	2,500	$	92.00	$	99.46	$	—	$	740
Third quarter 2014	Collars	2,000	$	90.00	94.33		—		827
Fourth quarter 2014	Collars	2,000	$	90.00	94.33		—		420
First quarter 2015	Collars	4,000	$	87.50	94.66		—		278
Second quarter 2015	Collars	4,000	$	87.50	94.66		276		—
Third quarter 2015	Collars	3,000	$	86.67	94.73		507		—
Fourth quarter 2015	Collars	3,000	$	86.67	94.73		766		—
Second quarter 2014	Swaps	8,500	$	94.00			—		4,984
Third quarter 2014	Swaps	10,000	$	93.21			342		4,410
Fourth quarter 2014	Swaps	10,000	$	93.21			709		2,417
First quarter 2015	Swaps	7,000	$	90.79			—		1,440
Second quarter 2015	Swaps	7,000	$	90.79			—		447
Third quarter 2015	Swaps	6,000	$	90.45			150		—
Fourth quarter 2015	Swaps	6,000	$	90.45			722		—
First quarter 2015	Swaptions	1,000	$	88.00			—		535
Second quarter 2015	Swaptions	1,000	$	88.00			—		534
Third quarter 2015	Swaptions	1,000	$	88.00			—		534
Fourth quarter 2015	Swaptions	1,000	$	88.00			—		534
Natural Gas:		(in MMBtu)	($/MMBtu)
Second quarter 2014	Swaps	15,000	$	4.10			—		474
Third quarter 2014	Swaps	15,000	$	4.10			—		450
Fourth quarter 2014	Swaps	5,000	$	4.50			—		2
First quarter 2015	Swaps	5,000	$	4.50			—		49
Settlements to be paid in subsequent period							—		1,761

Interest Rate Swaps

As of March 31, 2014, 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
	March 31,
	2014			2013
Impact by contract type:
Commodity contracts	$	(15,662	)	$	(7,761	)
Interest rate contracts	—			—
	$	(15,662	)	$	(7,761	)
Cash settlements and gains (losses):
Cash (paid) received for:
Commodity contract settlements	$	(3,057	)	$	3,557
Interest rate contract settlements	—			—
	(3,057		)	3,557
Losses attributable to:
Commodity contracts	(12,605		)	(11,318		)
Interest rate contracts	—			—
	(12,605		)	(11,318		)
	$	(15,662	)	$	(7,761	)

The effects of derivative gains and (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. These items are recorded in the Derivative contracts section of our Condensed Consolidated Statements of Cash Flows under the Net losses and Cash settlements, net 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
		March 31, 2014				December 31, 2013
		Derivative		Derivative		Derivative		Derivative
Type	Balance Sheet Location	Assets		Liabilities		Assets		Liabilities
Commodity contracts	Derivative assets/liabilities - current	$	65	$	19,403	$	3,830	$	10,141
Interest rate contracts	Derivative assets/liabilities - current	—		—		—		—
		65		19,403		3,830		10,141
Commodity contracts	Derivative assets/liabilities - noncurrent	1,974		—		1,552		—
Interest rate contracts	Derivative assets/liabilities - noncurrent	—		—		—		—
		1,974		—		1,552		—
		$	2,039	$	19,403	$	5,382	$	10,141

As of March 31, 2014, we reported a commodity derivative asset of $2.0 million. The contracts associated with this position are with five 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.