Derivative Instruments

6 Months Ended

Jun. 30, 2014

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 or natural gas quantities are produced. If a derivative 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 June 30, 2014, all of the Company's derivative instruments were designated as effective cash flow hedges.

Oil and gas sales include reductions related to the settlement of gas hedges of $2,170,000 and $877,000 and oil hedges of $672,000 and $1,000 for the three months endedJune 30, 2014 and 2013, respectively. For the six month periods ended June 30, 2014 and 2013, oil and gas sales include reductions related to the settlement of gas hedges of $5,139,000 and $345,000 and oil hedges of $1,106,000 and $146,000, respectively.

As of June 30, 2014, the Company had entered into the following commodity derivative instruments:

Production Period	Instrument Type	Daily Volumes	Weighted Average Price
Natural Gas:
July - December 2014	Swap	45,000 Mmbtu	$4.14
2015	Swap	5,000 Mmbtu	$4.32
Crude Oil:
July - December 2014	Swap (LLS)	650 Bbls	$101.05
July - December 2014	Swap (WTI)	350 Bbls	$93.26
Pentane:
July - December 2014	Swap	100 Bbls	$91.58

LLS - Louisiana Light Sweet

WTI - West Texas Intermediate

At June 30, 2014, the Company had recognized an accumulated other comprehensive loss of approximately $3.7 million related to the estimated fair value of its effective cash flow hedges. Based on estimated future commodity prices as of June 30, 2014, the Company would reclassify approximately $2.4 million, net of taxes, of accumulated other comprehensive loss into earnings 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.

Derivatives designated as hedging instruments:

All of the Company’s swap contracts are designated as effective cash flow hedges under ASC Topic 815-20-25. 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 June 30, 2014 and December 31, 2013:

	Commodity Derivatives
Period	Balance Sheet Location	Fair Value
June 30, 2014	Derivative asset	$	186
June 30, 2014	Derivative liability	$	(3,840	)
December 31, 2013	Derivative asset	$	521
December 31, 2013	Derivative liability	$	(1,617	)

Effect of Cash Flow Hedges on the Consolidated Statement of Operations for the three months ended June 30, 2014 and 2013:

Instrument	Amount of Gain Recognized in Other Comprehensive Income		Location of Loss Reclassified into Income	Amount of Loss Reclassified into Income
Commodity Derivatives at June 30, 2014	$	860	Oil and gas sales	$	(2,842	)
Commodity Derivatives at June 30, 2013	$	4,807	Oil and gas sales	$	(878	)

Effect of Cash Flow Hedges on the Consolidated Statement of Operations for the six months ended June 30, 2014 and 2013 :

Instrument	Amount of Gain (Loss) Recognized in Other Comprehensive Income			Location of Loss Reclassified into Income	Amount of Loss Reclassified into Income
Commodity Derivatives at June 30, 2014	$	(2,558	)	Oil and gas sales	$	(6,245	)
Commodity Derivatives at June 30, 2013	$	897		Oil and gas sales	$	(491	)

Derivatives not designated as hedging instruments:

During 2013, the Company utilized a three-way collar contract that was not designated as an effective cash flow hedge and therefore the changes in fair value on this derivative were recorded as derivative income in the statement of operations. This contract expired on December 31, 2013. The following tables reflect the fair value of this contract in the consolidated financial statements (in thousands):

Effect of Non-designated Derivative Instruments on the Consolidated Statement of Operations for the three months ended June 30, 2014 and 2013:

Instrument	Amount of Gain Recognized in Derivative Income
Commodity Derivatives at June 30, 2014	$	—
Commodity Derivatives at June 30, 2013	$	594

Effect of Non-designated Derivative Instruments on the Consolidated Statement of Operations for the six months ended June 30, 2014 and 2013:

Instrument	Amount of Gain Recognized in Derivative Income
Commodity Derivatives at June 30, 2014	$	—
Commodity Derivatives at June 30, 2013	$	157