Derivative Instruments

12 Months Ended

Dec. 31, 2012

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Instruments

Derivative Instruments

The Company seeks to reduce its exposure to commodity price volatility by hedging a portion of its production through commodity derivative instruments. When the conditions for hedge accounting are met, the Company may designate its commodity derivatives as cash flow hedges.

Oil and gas sales include additions (reductions) related to the settlement of gas hedges of $6,846,000, $2,609,000 and $17,538,000, Ngl hedges of $722,000, zero and zero, and oil hedges of $1,529,000, ($192,000) and zero, for the years ended December 31, 2012, 2011 and 2010, respectively.

As of December 31, 2012, the Company had entered into the following gas hedge contracts:

Production Period	Instrument Type	Daily Volumes	Weighted Average Price
Natural Gas:
2013	3-way collar	10,000 Mmbtu	$2.00-$3.00-$4.09
2013	Swap	5,000 Mmbtu	$4.00

At December 31, 2012, the Company had recognized a net asset of approximately $0.6 million related to the estimated fair value of these derivative instruments. Based on estimated future commodity prices as of December 31, 2012, the Company would realize a $0.4 milliongain, net of taxes, during the next 12 months. These gains are expected to be reclassified to oil and gas sales based on the schedule of gas volumes stipulated in the derivative contracts.

During January and February 2013, we entered into the following additional hedge contracts accounted for as cash flow hedges:

Production Period	Instrument Type	Daily Volumes	Weighted Average Price
Crude Oil:
February - December 2013	Swap	250 Bbls	$104.75
Natural Gas:
February - December 2013	Swap	10,000 Mmbtu	$3.71
March - December 2013	Swap	5,000 Mmbtu	$3.50
April - December 2013	Swap	5,000 Mmbtu	$3.74
January - December 2014	Swap	10,000 Mmbtu	$4.08

Derivatives designated as hedging instruments:

The following tables reflect the fair value of the Company’s effective cash flow hedges in the consolidated financial statements (in thousands):

Effect of Cash Flow Hedges on the Consolidated Balance Sheet at December 31, 2012 and December 31, 2011:

	Commodity Derivatives
Period	Balance Sheet Location	Fair Value
December 31, 2012	Derivative asset	$	830
December 31, 2011	Derivative asset	$	6,418

Effect of Cash Flow Hedges on the Consolidated Statement of Operations for the years ended December 31, 2012, 2011 and 2010:

Instrument	Amount of Gain (Loss) Recognized in Other Comprehensive Income			Location of Gain Reclassified into Income	Amount of Gain Reclassified into Income
Commodity Derivatives at December 31, 2012	$	(3,510	)	Oil and gas sales	$	9,097
Commodity Derivatives at December 31, 2011	$	5,120		Oil and gas sales	$	2,417
Commodity Derivatives at December 31, 2010	$	(2,857	)	Oil and gas sales	$	17,538

Derivatives not designated as hedging instruments:

The Company’s three-way collar contract for 2013 gas production has not been designated as an effective cash flow hedge and therefore both realized and unrealized (mark-to-market) gains or losses on this derivative are recorded as derivative expense (income) on the statement of operations. The following tables reflect the fair value of this contract in the consolidated financial statements (in thousands):

Effect of Non-designated Derivative Instrument on the Consolidated Balance Sheet at December 31, 2012 and December 31, 2011:

	Commodity Derivatives
Period	Balance Sheet Location	Fair Value
December 31, 2012	Derivative liability	$	(233	)
December 31, 2011		$	—

Effect of Non-designated Derivative Instrument on the Consolidated Statement of Operations for the twelve months ended December 31, 2012, 2011 and 2010:

Instrument	Amount of Unrealized Loss Recognized in Derivative Expense
Commodity Derivatives at December 31, 2012	$	(233	)
Commodity Derivatives at December 31, 2011	$	—
Commodity Derivatives at December 31, 2010	$	—