DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

12 Months Ended

Dec. 31, 2013

Derivative Instruments And Hedging Activities Disclosure [Abstract]

DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

NOTE 7 — 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 hedging transactions to secure a commodity price for a portion of future production that is acceptable at the time of the transaction. These hedges are designated as cash flow hedges upon entering into the contract. We do not enter into hedging transactions for trading purposes. We have no fair value hedges.

The nature of a derivative instrument must be evaluated to determine if it qualifies for hedge accounting treatment. If the instrument qualifies for hedge accounting treatment, it is recorded as either an asset or liability measured at fair value and subsequent changes in the derivative’s fair value are recognized in stockholders’ equity through other comprehensive income (loss), net of related taxes, to the extent the hedge is considered effective. Additionally, monthly settlements of effective hedges are reflected in revenue from oil and gas production and cash flows from operations. Instruments not qualifying for hedge accounting treatment are recorded in our balance sheet at fair value, and changes in fair value are recognized in earnings through derivative expense (income). Monthly settlements of ineffective hedges are recognized in earnings through derivative expense (income) and cash flows from operations. Typically, a small portion of our derivative contracts are determined to be ineffective. This is 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.

We have entered into fixed-price swaps with various counterparties for a portion of our expected 2014, 2015 and 2016 oil and natural gas production from the Gulf Coast Basin. Some of our fixed-price oil swap settlements are based on an average of the New York Mercantile Exchange (“NYMEX”) closing price for West Texas Intermediate crude oil during the entire calendar month, and some are based on the average of the Intercontinental Exchange closing price for Brent crude oil during the entire calendar month. Our fixed-price gas swap settlements are based on the NYMEX price for the last day of a respective contract 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. Our fixed-price swap contracts are with The Toronto-Dominion Bank, Barclays Bank PLC, BNP Paribas, The Bank of Nova Scotia, Bank of America, Natixis and Regions Bank.

All of our derivative instruments at December 31, 2013, 2012 and 2011 were designated as effective cash flow hedges. However, during the years ended December 31, 2013, 2012 and 2011, certain of our derivative contracts were determined to be partially ineffective. The following tables disclose the location and fair value amounts of derivative instruments reported in our balance sheet at December 31, 2013 and December 31, 2012.

Fair Value of Derivative Instruments at December 31, 2013
	Asset Derivatives			Liability Derivatives
Description	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Commodity contracts	Current assets: Fair value of hedging contracts	$	4,549	Current liabilities: Fair value of hedging contracts	$	7,753
	Long-term assets: Fair value of hedging contracts		1,378	Long-term liabilities: Fair value of hedging contracts		470
		$	5,927		$	8,223
Fair Value of Derivative Instruments at December 31, 2012
	Asset Derivatives			Liability Derivatives
Description	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Commodity contracts	Current assets: Fair value of hedging contracts	$	39,655	Current liabilities: Fair value of hedging contracts	$	149
	Long-term assets: Fair value of hedging contracts		9,199	Long-term liabilities: Fair value of hedging contracts		1,530
		$	48,854		$	1,679

The following table discloses the before tax effect of derivative instruments in the statement of income for the years ended December 31, 2013, 2012 and 2011.

Effect of Derivative Instruments on the Statement of Income for the Years Ended December 31, 2013, 2012 and 2011
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
	2013				2013				2013
Commodity contracts		($26,945	)	Operating revenue—oil/gas production	$	20,289		Derivative expense, net		($2,090	)
Total		($26,945	)		$	20,289				($2,090	)
	2012				2012				2012
Commodity contracts	$	41,209		Operating revenue—oil/gas production	$	30,326		Derivative income, net	$	3,428
Total	$	41,209			$	30,326			$	3,428
	2011				2011				2011
Commodity contracts	$	43,089		Operating revenue—oil/gas production		($13,274	)	Derivative income, net	$	1,418
Total	$	43,089				($13,274	)		$	1,418

(a) For the year ended December 31, 2013, effective hedging contracts increased oil revenue by $3,520 and increased gas revenue by $16,769. For the year ended December 31, 2012, effective hedging contracts increased oil revenue by $8,546 and increased gas revenue by $21,780. For the year ended December 31, 2011, effective hedging contracts decreased oil revenue by $32,706 and increased gas revenue by $19,432.

At December 31, 2013, we had an accumulated other comprehensive loss of $1,395, net of tax, which related to the fair value of our swap contracts that were outstanding as of December 31, 2013, the majority of which will be reclassified into earnings in the next 12 months.

Our derivative contracts are subject to netting arrangements. It is our policy not to offset our derivative contracts in presenting the fair value of these contracts as assets and liabilities in our balance sheet. The following presents the potential impact of the rights of offset associated with our recognized assets and liabilities at December 31, 2013:

	As Presented Without Netting			Effects of Netting			With Effects of Netting
Current assets: Fair value of hedging contracts	$	4,549		($	4,043	)	$	506
Long-term assets: Fair value of hedging contracts		1,378			(274	)		1,104
Current liabilities: Fair value of hedging contracts		(7,753	)		4,043			(3,710	)
Long-term liabilities: Fair value of hedging contracts		(470	)		274			(196	)

The following table illustrates our hedging positions for calendar years 2014, 2015 and 2016 as of February 25, 2014:

	Fixed-Price Swaps NYMEX (except where noted)
	Natural Gas					Oil
	Daily Volume (MMBtus/d)			Swap Price ($)		Daily Volume (Bbls/d)			Swap Price ($)
2014		10,000			4.000		1,000			90.06
2014		10,000			4.040		1,000			92.25
2014		10,000			4.105		1,000			93.55
2014		10,000			4.190		1,000			94.00
2014		10,000	(a)		4.250		1,000			98.00
2014		10,000			4.250		1,000			98.30
2014		10,000			4.350		2,000	(b)		98.85
2014							1,000			99.65
2014							1,000	(c)		103.30
2015		10,000			4.005		1,000			89.00
2015		10,000			4.120		1,000			90.00
2015		10,000			4.150
2015		10,000			4.165
2015		10,000			4.220
2015		10,000			4.255
2016		10,000			4.110
2016		10,000			4.120

(a) February through December

(b) January through June

(c) Brent crude oil contract