Derivative Instruments

12 Months Ended

Dec. 31, 2013

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. The changes in fair value of derivative instruments that qualify for hedge accounting treatment are recorded in other comprehensive income (loss) until the hedged oil, natural gas or natural gas liquids (Ngl) quantities are produced. If a hedge becomes ineffective because the hedged production does not occur, or the hedge otherwise does not qualify for hedge accounting treatment, the changes in the fair value of the derivative are recorded in the income statement as derivative income (expense). At December 31, 2013, the Company designated all of its derivative instruments as effective cash flow hedges. At December 31, 2012, the Company designated all derivative instruments except its three-way collar as effective cash flow hedges.

Oil and gas sales include additions (reductions) related to the settlement of gas hedges of $1,098,000, $6,846,000 and $2,609,000, Ngl hedges of $61,000, $722,000 and zero, and oil hedges of ($232,000), $1,529,000 and ($192,000), for the years ended December 31, 2013, 2012 and 2011, respectively.

As of December 31, 2013, the Company had entered into the following gas hedge contracts:

Production Period	Instrument Type	Daily Volumes	Weighted Average Price
Natural Gas:
2014	Swap	40,000 Mmbtu	$4.12
Crude Oil:
January - June 2014	Swap (LLS)	450 Bbls	$100.58
2014	Swap (LLS)	400 Bbls	$101.15
2014	Swap (WTI)	350 Bbls	$93.26

LLS - Louisiana Light Sweet

WTI - West Texas Intermediate    

At December 31, 2013, the Company had recognized a net liability of approximately $1.1 million related to the estimated fair value of these derivative instruments. Based on estimated future commodity prices as of December 31, 2013, the Company would realize a $0.7 millionloss, net of taxes, during the next 12 months. These losses are expected to be reclassified to oil and gas sales based on the schedule of oil and gas volumes stipulated in the derivative contracts.

During January 2014, the Company entered into the following additional hedge contract accounted for as a cash flow hedge:

Production Period	Instrument Type	Daily Volumes	Weighted Average Price
Natural Gas:
March - December 2014	Swap	5,000 Mmbtu	$4.285

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, 2013 and December 31, 2012:

	Commodity Derivatives
Period	Balance Sheet Location	Fair Value
December 31, 2013	Derivative asset	$	521
December 31, 2013	Derivative liability	$	(1,617	)
December 31, 2012	Derivative asset	$	830

Effect of Cash Flow Hedges on the Consolidated Statement of Operations for the twelve months ended December 31, 2013, 2012 and 2011:

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, 2013	$	(1,617	)	Oil and gas sales	$	994
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

Derivatives not designated as hedging instruments:

The Company’s three-way collar contract for 2013 gas production was not designated as an effective cash flow hedge and therefore both realized and unrealized (mark-to-market) gains or losses on this derivative were recorded as derivative expense (income) in 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:

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

Effect of Non-designated Derivative Instrument on the Consolidated Statement of Operations for the twelve months ended December 31, 2013, 2012 and 2011:

Instrument	Amount of Gain (Loss) Recognized in Derivative Income (Expense)
Commodity Derivatives at December 31, 2013	$	233
Commodity Derivatives at December 31, 2012	$	(233	)
Commodity Derivatives at December 31, 2011	$	—