DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

12 Months Ended

Dec. 31, 2016

Derivative Instruments and Hedging Activities Disclosure [Abstract]

DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES:

Our hedging strategy is designed to protect our near and intermediate term cash flows from future declines in oil and natural gas prices. This protection is essential to capital budget planning, which is sensitive to expenditures that must be committed to in advance, such as rig contracts and the purchase of tubular goods. We enter into derivative transactions to secure a commodity price for a portion of our expected future production that is acceptable at the time of the transaction. These derivatives are generally designated as cash flow hedges upon entering into the contracts. We do not enter into derivative transactions for trading purposes. We have no fair value hedges.

During 2016, 2015 and 2014, a portion of our oil and natural gas production was hedged with fixed-price swaps and collars with various counterparties. We did not have any outstanding derivative contracts at December 31, 2016. In January and February 2017, we entered into various fixed-price swaps and put contracts for a portion of our expected 2017 and 2018 oil production from the Gulf Coast Basin. As of February 23, 2017, our outstanding fixed-price swaps and put contracts are with Natixis, Bank of America Merrill Lynch, The Toronto-Dominion Bank and The Bank of Nova Scotia.

Our fixed-price oil swap settlements are based on an average of the New York Mercantile Exchange ("NYMEX") closing price for West Texas Intermediate ("WTI") crude oil during the entire calendar month. Swaps typically provide for monthly payments by us if prices rise above the swap price or monthly payments to us if prices fall below the swap price. Put contracts are purchased at a rate per unit of hedged production that fluctuates with the commodity futures market. The historical cost of the put contract represents our maximum cash exposure. We are not obligated to make any further payments under the put contract regardless of future commodity price fluctuations. Under put contracts, monthly payments are made to us if the NYMEX prices fall below the agreed upon floor price, while allowing us to fully participate in commodity prices above the floor. Our put contract settlements are based on the average of the NYMEX closing price for WTI crude oil during the entire calendar month.

The following tables illustrate our derivative positions for calendar years 2017 and 2018 as of February 23, 2017:

		Put Contracts (NYMEX)
		Oil
		Cost of Put		Daily Volume	Price
		($ in thousands)		(Bbls/d)	($ per Bbl)
2017	February - December	$	752	1,000	$	50.00
2017	February - December	802		1,000	50.00
2018	January - December	2,183		1,000	54.00

		Fixed-Price Swaps (NYMEX)
		Oil
		Daily Volume	Swap Price
		(Bbls/d)	($ per Bbl)
2017	March - December	1,000	$	53.90
2018	January - December	1,000	52.50

All of our derivative transactions have been carried out in the over-the-counter market and are not typically subject to margin-deposit requirements. The use of derivative instruments involves the risk that the counterparties will be unable to meet the financial terms of such transactions. The counterparties to all of our derivative instruments have an "investment grade" credit rating. We monitor the credit ratings of our derivative counterparties on an ongoing basis. Although we typically enter into derivative contracts with multiple counterparties to mitigate our exposure to any individual counterparty, if any of our counterparties were to default on its obligations to us under the derivative contracts or seek bankruptcy protection, we may not realize the benefit of some of our derivative instruments and incur a loss. At February 23, 2017, our derivative instruments were with four counterparties, one of which hedged approximately 37% of our total contracted volumes and three of which each hedged approximately 21% of our total contracted volumes. All of our outstanding derivative instruments are with lenders under our current bank credit facility.

We previously discontinued hedge accounting for certain 2015 natural gas contracts, as it became no longer probable, subsequent to the sale of our non-core GOM conventional shelf properties, that our GOM natural gas production would be sufficient to cover the GOM volumes hedged. Additionally, a small portion of our cash flow hedges are typically determined to be ineffective because oil and natural gas price changes in the markets in which we sell our products are not 100% correlative to changes in the underlying price basis indicative in the derivative contract.

Derivatives qualifying as hedging instruments:

We had no outstanding hedging instruments at December 31, 2016. The following table discloses the location and fair value amounts of derivatives qualifying as hedging instruments, as reported in our balance sheet, at December 31, 2015.

Fair Value of Derivatives Qualifying as Hedging Instruments at
December 31, 2015
	Asset Derivatives			Liability Derivatives
Description	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Commodity contracts	Current assets: Fair value of derivative contracts	$	38,576	Current liabilities: Fair value of derivative contracts	$	—
	Long-term assets: Fair value of derivative contracts	—		Long-term liabilities: Fair value of derivative contracts	—
		$	38,576		$	—

The following table discloses the before tax effect of derivatives qualifying as hedging instruments, as reported in the statement of operations, for the years ended December 31, 2016, 2015 and 2014:

Effect of Derivatives Qualifying as Hedging Instruments on the Statement of Operations
for the Years Ended December 31, 2016, 2015, and 2014
Derivatives in Cash Flow Hedging Relationships	Amount of Gain (Loss) Recognized in Other Comprehensive Income on Derivatives			Gain (Loss) Reclassified from Accumulated Other Comprehensive Income into Income (Effective Portion) (a)			Gain (Loss) Recognized in Income on Derivatives (Ineffective Portion)
				Location			Location
	2016				2016			2016
Commodity contracts	$	(1,648	)	Operating revenue - oil/natural gas production	$	35,457	Derivative income (expense), net	$	(810	)
Total	$	(1,648	)		$	35,457		$	(810	)
	2015				2015			2015
Commodity contracts	$	52,630		Operating revenue - oil/natural gas production	$	149,955	Derivative income (expense), net	$	2,713
Total	$	52,630			$	149,955		$	2,713
	2014				2014			2014
Commodity contracts	$	136,097		Operating revenue - oil/natural gas production	$	526	Derivative income (expense), net	$	5,721
Total	$	136,097			$	526		$	5,721

(a) For the year ended December 31, 2016, effective hedging contracts increased oil revenue by $23,747 and increased natural gas revenue by $11,710. For the year ended December 31, 2015, effective hedging contracts increased oil revenue by $135,617 and increased natural gas revenue by $14,338. For the year ended December 31, 2014, effective hedging contracts increased oil revenue by $7,929 and decreased natural gas revenue by $7,403.

Derivatives not qualifying as hedging instruments:

Gains or losses related to changes in fair value and cash settlements for derivatives not qualifying as hedging instruments are recorded as derivative income (expense) in the statement of operations. The following table discloses the before tax effect of our derivatives not qualifying as hedging instruments on the statement of operations for the years ended December 31, 2016, 2015 and 2014.

Gain (Loss) Recognized in Derivative Income (Expense)
	Year Ended
Description	December 31, 2016		December 31, 2015			December 31, 2014
Commodity contracts:
Cash settlements	$	—	$	17,385		$	1,484
Change in fair value	—		(12,146		)	12,146
Total gain on non-qualifying derivatives	$	—	$	5,239		$	13,630

Offsetting of derivative assets and liabilities:

Our derivative contracts are subject to netting arrangements. It is our policy to not offset our derivative contracts in presenting the fair value of these contracts as assets and liabilities in our balance sheet. We had no outstanding derivative contracts as of December 31, 2016. As of December 31, 2015, all of our derivative contracts were in an asset position and therefore, there was no potential impact of the rights of offset.