DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

12 Months Ended

Dec. 31, 2014

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 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.

The nature of a derivative instrument must be evaluated to determine if it qualifies as a hedging instrument. If the instrument qualifies as a hedging instrument, 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. Monthly settlements of effective hedges are reflected in revenue from oil and gas production and cash flows from operating activities. Instruments not qualifying as hedging instruments 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 and derivative instruments not qualifying as hedging instruments are recognized in earnings through derivative expense (income) and cash flows from operating activities.

We have entered into fixed-price swaps with various counterparties for a portion of our expected 2015 and 2016 oil and natural gas production from the Gulf Coast Basin. 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. 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, The Bank of Nova Scotia, Bank of America and Natixis.

The following table illustrates our derivative positions for calendar years 2015 and 2016 as of February 24, 2015:

	Fixed-Price Swaps (NYMEX)
	Natural Gas				Oil
	Daily Volume (MMBtus/d)		Swap Price ($/MMBtu)		Daily Volume (Bbls/d)		Swap Price ($/Bbl)
2015		10,000		4.005		1,000		89.00
2015		10,000		4.120		1,000		90.00
2015		10,000		4.150		1,000		90.25
2015		10,000		4.165		1,000		90.40
2015		10,000		4.220		1,000		91.05
2015		10,000		4.255		1,000		93.28
2015						1,000		93.37
2015						1,000		94.85
2015						1,000		95.00
2016		10,000		4.110		1,000		90.00
2016		10,000		4.120

All of our derivative instruments at December 31, 2013 and 2012 were designated as effective cash flow hedges. During 2014, certain of our natural gas derivative instruments no longer qualified as cash flow hedges, as it was no longer probable, subsequent to the sale of our non-core GOM conventional shelf properties (see Note 6 – Divestitures), that GOM natural gas production would be sufficient to cover the GOM volumes hedged. Accordingly, we discontinued hedge accounting for such contracts. Natural gas contracts no longer qualifying as cash flow hedges included three contracts for the month of August 2014, four contracts for the months of September through December 2014 and three contracts for the months of January through December 2015. 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. At December 31, 2014, we had accumulated other comprehensive income of $86,783, net of tax, related to the fair value of our effective cash flow hedges that were outstanding as of December 31, 2014. We believe that approximately $77,991, net of tax, of accumulated other comprehensive income will be reclassified into earnings in the next 12 months.

Derivatives qualifying as hedging instruments:

The following tables disclose the location and fair value amounts of derivatives qualifying as hedging instruments, as reported in our balance sheet, at December 31, 2014 and 2013:

Fair Value of Derivatives Qualifying as Hedging Instruments at December 31, 2014
	Asset Derivatives			Liability Derivatives
Description	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Commodity contracts	Current assets: Fair value of derivative contracts		$127,033	Current liabilities: Fair value of derivative contracts		$  -
	Long-term assets: Fair value of derivative contracts		14,333	Long-term liabilities: Fair value of derivative contracts		-
			$141,366			$  -

Fair Value of Derivatives Qualifying as Hedging 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 derivative contracts		$4,549	Current liabilities: Fair value of derivative contracts		$7,753
	Long-term assets: Fair value of derivative contracts		1,378	Long-term liabilities: Fair value of derivative contracts		470
			$5,927			$8,223

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, 2014, 2013 and 2012:

Effect of Derivatives Qualifying as Hedging Instruments on the Statement of Operations for the Years Ended December 31, 2014, 2013 and 2012
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
	2014			2014			2014
Commodity contracts		$136,097	Operating revenue - oil/gas production		$526	Derivative income, net		$5,721
Total		$136,097			$526			$5,721
	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

(a) For the year ended December 31, 2014, effective hedging contracts increased oil revenue by $7,929 and decreased gas revenue by $7,403. 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.

Derivatives not qualifying as hedging instruments:

The following table discloses the location and fair value amounts of our derivatives not qualifying as hedging instruments, as reported in our balance sheet, at December 31, 2014. All of our derivatives at December 31, 2013 qualified as hedging instruments.

Fair Value of Derivatives Not Qualifying as Hedging Instruments at December 31, 2014
Description	Balance Sheet Location	Fair Value
Commodity contracts	Current assets: Fair value of derivative contracts	$	12,146

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 year ended December 31, 2014:

Amount of Gain Recognized in Derivative Income
Description	Year Ended     December 31, 2014
Commodity contracts:
Cash settlements		$1,484
Change in fair value		12,146
Total gains on non-qualifying hedges		$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. As of December 31, 2014, all of our derivative contracts were in an asset position and therefore, there was no potential impact of the rights of offset. 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 derivative contracts		$4,549		($4,043)		$506
Long-term assets: Fair value of derivative contracts		1,378		(274)		1,104
Current liabilities: Fair value of derivative contracts		(7,753)		4,043		(3,710)
Long-term liabilities: Fair value of derivative contracts		(470)		274		(196)