Derivative Instruments and Hedging Activities

12 Months Ended

Dec. 31, 2011

Derivative Instruments and Hedging Activities

Derivative Instruments and Hedging Activities

12. Derivative Instruments and Hedging Activities

        The Company periodically enters into commodity derivative instruments to hedge its exposure to price fluctuations on natural gas and crude oil production. The Company's credit agreement restricts the ability of the Company to enter into commodity hedges other than to hedge or mitigate risks to which the Company has actual or projected exposure or as permitted under the Company's risk management policies and not subjecting the Company to material speculative risks. All of the Company's derivatives are used for risk management purposes and are not held for trading purposes. As of December 31, 2011, the Company had 37 derivative contracts open: 23 natural gas price swap arrangements, six natural gas basis swaps arrangements, three crude oil price swap arrangements and five natural gas collar arrangements. During 2011, the Company entered into 31 new derivative contracts covering anticipated natural gas and crude oil production for 2011, 2012, and 2013.

        As of December 31, 2011, the Company had the following outstanding commodity derivatives:

Commodity and Derivative Type	Weighted-Average Contract Price	Volume	Contract Period
Derivatives Designated as Hedging Instruments
Natural Gas Swaps	$5.22 per Mcf	95,998 Mmcf	Jan. 2012 - Dec. 2012
Natural Gas Collars	$6.20 Ceiling/ $5.15 Floor per Mcf	17,729 Mmcf	Jan. 2013 - Dec. 2013
Crude Oil Swaps	$98.28 per Bbl	732 Mbbl	Jan. 2012 - Dec. 2012
Derivatives Not Designated as Hedging Instruments
Natural Gas Basis Swaps	$(0.27) per Mcf	17,042 Mmcf	Jan. 2012 - Dec. 2012

        The change in fair value of derivatives designated as hedges that is effective is recorded to Accumulated Other Comprehensive Income in Stockholders' Equity in the Consolidated Balance Sheet. The ineffective portion of the change in the fair value of derivatives designated as hedges, and the change in fair value of derivatives not designated as hedges, are recorded currently in earnings as a component of Natural Gas revenue and Crude Oil and Condensate revenue in the Consolidated Statement of Operations.

        The following tables reflect the fair value of derivative instruments on the Company's consolidated financial statements:

Effect of Derivative Instruments on the Consolidated Balance Sheet

		Fair Value Asset (Liability)
		December 31,
(In thousands)	Balance Sheet Location	2011			2010
Derivatives Designated as Hedging Instruments
Commodity Contracts	Derivative Instruments (current assets)	$	177,389		$	16,926
Commodity Contracts	Accrued Liabilities		(385	)		—
Commodity Contracts	Derivative Instruments (non-current assets)		21,249			—
			198,253			16,926
Derivatives Not Designated as Hedging Instruments
Commodity Contracts	Derivative Instruments (current assets)		(3,126	)		—
Commodity Contracts	Other Liabilities		—			(2,180	)
			(3,126	)		(2,180	)
		$	195,127		$	14,746

        At December 31, 2011 and 2010, unrealized gains of $198.3 million ($121.3 million, net of tax) and $16.9 million ($10.5 million, net of tax), respectively, were recorded in Accumulated Other Comprehensive Income in the Consolidated Balance Sheet. Based upon estimates at December 31, 2011, the Company expects to reclassify $108.3 million in after-tax income associated with its commodity hedges from Accumulated Other Comprehensive Income to the Consolidated Statement of Operations over the next 12 months.

• Effect of Derivative Instruments on the Consolidated Statement of Operations

	Amount of Gain (Loss) Recognized in OCI on Derivative (Effective Portion)							Amount of Gain (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)
	Year Ended December 31,						Location of Gain (Loss) Reclassified from Accumulated OCI into Income	Year Ended December 31,
Derivatives Designated as Hedging Instruments (In thousands)
	2011		2010		2009			2011		2010		2009
Commodity Contracts	$	267,667	$	75,655	$	154,086	Natural Gas Revenues	$	84,937	$	154,960	$	371,915
							Crude Oil and Condensate Revenues		1,403		18,030		23,112
									86,340		172,990	$	395,027

        For the years ended December 31, 2011, 2010 and 2009, respectively, there was no ineffectiveness recorded in our Consolidated Statement of Operations related to our derivative instruments.

		Year Ended December 31,
Derivatives Not Designated as Hedging Instruments (In thousands)	Location of Gain (Loss) Recognized in Income on Derivative
		2011			2010			2009
Commodity Contracts	Natural Gas Revenues	$	(965	)	$	(226	)	$	(1,954	)

Additional Disclosures about Derivative Instruments and Hedging Activities

        The use of derivative instruments involves the risk that the counterparties will be unable to meet their obligation under the agreement. The Company enters into derivative contracts with multiple counterparties in order to limit its exposure to individual counterparties. The Company also has netting arrangements with all of its counterparties that allow it to offset payables against receivables from separate derivative contracts with that counterparty.

        The counterparties to the Company's derivative instruments are also lenders under its credit facility. The Company's credit facility and derivative instruments contain certain cross default and acceleration provisions that may require immediate payment of its derivative liability in certain situations.