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Derivative Instruments and Hedging Activities
 9 Months Ended
Sep. 30, 2014
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Instruments and Hedging Activities
Derivative Instruments and Hedging Activities
The Company periodically enters into commodity derivatives to manage 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 derivatives 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 where such derivatives do not subject 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.
Through March 31, 2014, the Company elected to designate its commodity derivatives as cash flow hedges for accounting purposes. Effective April 1, 2014, the Company elected to discontinue hedge accounting for its commodity derivatives on a prospective basis. Accordingly, the change in the fair value of derivatives designated as hedges that are effective is recorded to accumulated other comprehensive income (loss) in stockholders’ equity in the Condensed 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 realized cash settlements of derivatives not designated as hedges are recorded as a component of operating revenues in gain (loss) on derivative instruments in the Condensed Consolidated Statement of Operations.
As a result of discontinuing hedge accounting, the unrealized loss included in accumulated other comprehensive income (loss) as of April 1, 2014 of $73.4 million ($44.2 million net of tax) was frozen and will be reclassified into natural gas and crude oil and condensate revenues in the Condensed Consolidated Statement of Operations in future periods as the underlying hedge transactions occur. Through September 30, 2014, the Company has reclassified after-tax losses of $26.8 million that were previously frozen in accumulated other comprehensive income (loss) to natural gas and crude oil and condensate revenues in the Condensed Consolidated Statement of Operations. As of September 30, 2014, the Company expects to reclassify $17.4 million in after-tax losses associated with its commodity derivatives from accumulated other comprehensive income (loss) to natural gas and crude oil and condensate revenues in the Condensed Consolidated Statement of Operations over the next three months.
As of September 30, 2014, the Company had the following outstanding commodity derivatives:
 
 
 
 
 
 
 
 
Collars
 
Swaps
 
 
 
 
 
 
 
 
Floor
 
Ceiling
 
 
Type of Contract
 
Volume
 
Contract Period
 
Range
 
Weighted-Average
 
Range
 
Weighted- Average
 
Weighted- Average
Natural gas
 
84.9
 
Bcf
 
Oct. 2014 - Dec. 2014
 
$3.60-$4.37

 
$
4.13

 
$4.22-$4.80
 
$
4.51

 
 

Natural gas
 
26.8
 
Bcf
 
Oct. 2014 - Dec. 2014
 
 

 
 

 
 
 
 

 
$
4.05

Natural gas
 
35.5
 
Bcf
 
Jan. 2015 - Dec. 2015
 
—

 
$
3.86

 
$4.36-$4.43
 
$
4.40

 
 
Natural gas
 
35.5
 
Bcf
 
Jan. 2015 - Dec. 2015
 
 
 
 
 
 
 
 
 
$
4.12

Crude oil
 
184.0
 
Mbbl
 
Oct. 2014 - Dec. 2014
 
 

 
 

 
 
 
 

 
$
97.00


Natural gas prices are stated per Mcf and crude oil prices are stated per barrel.
Effect of Derivative Instruments on the Condensed Consolidated Balance Sheet
 
 
 
 
Fair Values of Derivative Instruments
 
 
 
 
Derivative Assets
 
Derivative Liabilities
(In thousands)
 
Balance Sheet Location
 
September 30,
2014
 
December 31,
2013
 
September 30,
2014
 
December 31,
2013
Derivatives Designated as Hedges
 
 
 
 

 
 

 
 

 
 

Commodity contracts
 
Other current assets
 
$
—

 
$
3,019

 
$
—

 
$
—

Commodity contracts
 
Accrued liabilities
 
—

 
—

 
—

 
13,912

Derivatives Not Designated as Hedges
 
 
 
 

 
 

 
 

 
 

Commodity contracts
 
Other current assets
 
16,503

 
—

 
—

 
—

Commodity contracts
 
Accrued liabilities
 
—

 
—

 
102

 
—

Commodity contracts
 
Other liabilities
 
—

 
—

 
549

 
—

 
 
 
 
$
16,503

 
$
3,019

 
$
651

 
$
13,912


Offsetting of Derivative Assets and Liabilities in the Condensed Consolidated Balance Sheet
(In thousands)
 
September 30,
2014
 
December 31,
2013
Derivative Assets
 
 

 
 

Gross amounts of recognized assets
 
$
19,445

 
$
13,792

Gross amounts offset in the statement of financial position
 
(2,942
)
 
(10,773
)
Net amounts of assets presented in the statement of financial position
 
16,503

 
3,019

Gross amounts of financial instruments not offset in the statement of financial position
 
238

 
373

Net amount
 
$
16,741

 
$
3,392

 
 
 
 
 
Derivative Liabilities
 
 

 
 

Gross amounts of recognized liabilities
 
$
3,593

 
$
24,685

Gross amounts offset in the statement of financial position
 
(2,942
)
 
(10,773
)
Net amounts of liabilities presented in the statement of financial position
 
651

 
13,912

Gross amounts of financial instruments not offset in the statement of financial position
 
—

 
—

Net amount
 
$
651

 
$
13,912


Effect of Derivative Instruments on Accumulated Other Comprehensive Income (Loss)
The amount of gain (loss) recognized in accumulated other comprehensive income (loss) on derivatives (effective portion) is as follows:
 
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
(In thousands)
 
2014
 
2013
 
2014
 
2013
Commodity contracts
 
$
—

 
$
(2,384
)
 
$
(133,310
)
 
$
51,783


The amount of gain (loss) reclassified from accumulated other comprehensive income (loss) into income (effective portion) is as follows:
 
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
(In thousands)
 
2014 (1)
 
2013
 
2014 (1)
 
2013
Natural gas revenues
 
$
(21,427
)
 
$
20,766

 
$
(114,304
)
 
$
33,822

Crude oil and condensate revenues
 
(130
)
 
(1,082
)
 
(984
)
 
3,054

 
 
$
(21,557
)
 
$
19,684

 
$
(115,288
)
 
$
36,876

 
(1)
The Company ceased hedge accounting effective April 1, 2014. For the three and nine months ended September 30, 2014, a loss of approximately $21.6 million and $44.5 million, respectively, were reclassified into income. These amounts were previously frozen in accumulated other comprehensive income (loss).
Effect of Derivative Instruments on the Condensed Consolidated Statement of Operations
The amount of gain (loss) recognized in the Condensed Consolidated Statement of Operations on derivative instruments is as follows:
 
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
(In thousands)
 
2014
 
2013
 
2014
 
2013
Derivatives Designated as Hedges
 
 

 
 

 
 

 
 

Realized
 
 

 
 

 
 

 
 

Natural gas
 
$
—

 
$
20,766

 
$
(70,557
)
 
$
33,822

Crude oil and condensate
 
—

 
(1,082
)
 
(218
)
 
3,054

 
 
$
—

 
$
19,684

 
$
(70,775
)
 
$
36,876

Derivatives Not Designated as Hedges
 
 

 
 

 
 

 
 

Realized
 
 

 
 

 
 

 
 

Natural gas
 
$
(21,427
)
 
$
—

 
$
(43,747
)
 
$
—

Crude oil and condensate
 
(130
)
 
—

 
(766
)
 
—

Gain (loss) on derivative instruments
 
40,073

 
—

 
24,811

 
—

Unrealized
 
 

 
 

 
 

 
 

Gain (loss) on derivative instruments
 
31,833

 
—

 
44,766

 
—

 
 
$
50,349

 
$
—

 
$
25,064

 
$
—

 
 
 
 
 
 
 
 
 
 
 
$
50,349

 
$
19,684

 
$
(45,711
)
 
$
36,876


For the three and nine months ended September 30, 2014 and 2013, respectively, there was no ineffectiveness recorded in the Condensed Consolidated Statement of Operations related to derivative instruments designated as hedges.
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 obligations under the agreements. 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 each of its counterparties that allow it to offset assets and liabilities from separate derivative contracts with that counterparty.
Certain counterparties to the Company’s derivative instruments are also lenders under its revolving credit facility. The Company’s revolving credit facility and derivative instruments contain certain cross default and acceleration provisions that may require immediate payment of its derivative liabilities in certain situations.