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Hedge Contracts
9 Months Ended
Sep. 30, 2012
Notes to Financial Statements [Abstract]  
Hedge Contracts
NOTE E - HEDGE CONTRACTS
 
We are exposed to financial and market risks that affect our businesses. We have currency exchange rate risk exposure related to transactions denominated in a foreign currency as well as to investments in certain of our international operations. As a result of our variable rate bank credit facilities, we face market risk exposure related to changes in applicable interest rates. We have concentrations of credit risk as a result of trade receivables owed to us by companies in the energy industry. Our financial risk management activities may at times involve, among other measures, the use of derivative financial instruments, such as swap and collar agreements, to hedge the impact of market price risk exposures. Prior to the sale of substantially all of our remaining Maritech oil and gas properties in May 2011, we utilized cash flow commodity hedge transactions to reduce our exposure related to the volatility of oil and gas prices. These cash flow commodity hedge contracts were liquidated in the second quarter of 2011. For these and other hedge contracts, we formally document the relationships between hedging instruments and hedged items, as well as our risk management objectives, our strategies for undertaking various hedge transactions, and our methods for assessing and testing correlation and hedge ineffectiveness. All hedging instruments are linked to the hedged asset, liability, firm commitment, or forecasted transaction. We also assess, both at the inception of the hedge and on an ongoing basis, whether the derivatives that are used in these hedging transactions are highly effective in offsetting changes in cash flows of the hedged items.
 
Derivative Hedge Contracts
 
In April 2011, following the execution of the purchase and sale agreement pursuant to which Maritech agreed to sell approximately 79% of its proved reserves, we liquidated our remaining oil hedge contracts and paid $14.2 million to the counterparty. Therefore, from April 2011 forward, we have had no remaining cash flow hedging swap contracts outstanding associated with our Maritech subsidiary's oil or gas production.
 
Prior to their liquidation during 2011, we believe that our swap agreements were “highly effective cash flow hedges,” in managing the volatility of future cash flows associated with Maritech's oil production. The effective portion of the change in the derivative's fair value (i.e., that portion of the change in the derivative's fair value that offsets the corresponding change in the cash flows of the hedged transaction) was initially reported as a component of accumulated other comprehensive income, which was classified within equity. This component of accumulated other comprehensive income associated with cash flow hedge derivative contracts, including any derivative contracts which have been liquidated, was subsequently reclassified into product sales revenues, utilizing the specific identification method, when the hedged exposure affected earnings (i.e., when hedged oil and gas production volumes were reflected in revenues). Any “ineffective” portion of the change in the derivative's fair value was recognized in earnings immediately.
 
Pretax gains and losses associated with oil and gas derivative swap contracts for the nine month periods ended September 30, 2011, are summarized below:
 
 
Nine Months Ended September 30, 2011
Derivative Swap Contracts
Oil
 
Natural Gas
 
Total
 
(In Thousands)
Amount of pretax gain reclassified from accumulated other comprehensive
 
 
 
 
 
 
 
 
 
 
 
income into product sales revenue (effective portion)
$
1,177
 
 
$
-
 
 
$
1,177
 
Amount of pretax gain (loss) from change in derivative fair value
 
 
 
 
 
 
 
 
 
 
 
recognized in other comprehensive income
 
(7,854)
 
 
 
-
 
 
 
(7,854)
 
Amount of pretax gain (loss) recognized in other income (expense)
 
 
 
 
 
 
 
 
 
 
 
(ineffective portion)
 
(13,947)
 
 
 
-
 
 
 
(13,947)
 
 
Other Hedge Contracts
 
In July 2012, we borrowed 10.0 million euros (approximately $12.9 million equivalent as of September 30, 2012) and designated the borrowing as a hedge of our net investment in our European operations. Changes in the foreign currency exchange rate have resulted in a cumulative change to the cumulative translation adjustment account of $0.5 million, net of taxes, at September 30, 2012, with no ineffectiveness recorded.