Derivative Instruments and Hedging Activities

9 Months Ended

Sep. 30, 2012

Derivative Instruments and Hedging Activities [Abstract]

Derivative Instruments and Hedging Activities

Note 5. Derivative Instruments

We do not apply hedge accounting treatment to our oil and natural gas derivative contracts; therefore, the changes in the fair values of these instruments are recognized in income in the period of change. These fair value changes, along with the cash settlements of expired contracts, are shown under “Derivatives expense (income)” in our Unaudited Condensed Consolidated Statements of Operations.

We enter into various oil and natural gas derivative contracts to provide an economic hedge of our exposure to commodity price risk associated with anticipated future oil and natural gas production. We do not hold or issue derivative financial instruments for trading purposes. These contracts have consisted of price floors, collars and fixed price swaps. The production that we hedge has varied from year to year depending on our levels of debt and financial strength and expectation of future commodity prices. We currently employ a strategy to hedge a portion of our forecasted production approximately 12 to 18 monthsin advance, as we believe it is important to protect our future cash flow to provide a level of assurance for our capital spending in those future periods in light of current worldwide economic uncertainties and commodity price volatility.

We manage and control market and counterparty credit risk through established internal control procedures that are reviewed on an ongoing basis. We attempt to minimize credit risk exposure to counterparties through formal credit policies, monitoring procedures, and diversification. We only enter into commodity derivative contracts with parties that are lenders under our BankCredit Agreement.

The following is a summary of “Derivatives expense (income)” included in the accompanying Unaudited Condensed Consolidated Statements of Operations for the periods indicated:

				Three Months Ended				Nine Months Ended
				September 30,				September 30,
In thousands				2012		2011		2012		2011
Oil
	Payment on settlements of derivative contracts			$	641	$	1,857	$	9,580	$	23,857
	Fair value adjustments to derivative contracts – expense (income)				60,726		(205,355)		(37,752)		(225,485)
		Total derivatives expense (income) – oil			61,367		(203,498)		(28,172)		(201,628)
Natural Gas
	Receipt on settlements of derivative contracts				(6,910)		(6,427)		(21,941)		(19,073)
	Fair value adjustments to derivative contracts – expense (income)				7,174		(229)		17,910		8,393
		Total derivatives expense (income) – natural gas			264		(6,656)		(4,031)		(10,680)
			Derivatives expense (income)	$	61,631	$	(210,154)	$	(32,203)	$	(212,308)

Commodity Derivative Contracts Not Classified as Hedging Instruments

The following tables presentoutstanding commodity derivative contracts with respect to future production as of September 30, 2012:

					Contract Prices(2)
			Type of				Weighted Average Price
Year		Months	Contract	Volume(1)		Range	Swap		Floor		Ceiling
Oil Contracts:
2012		Oct – Dec	Swap	625	$	80.28 – 81.75	$	81.04	$	—	$	—
			Collar	53,000		80.00 – 140.65		—		80.00		128.57
			Put	625		65.00 – 65.00		—		65.00		—
		Total Oct – Dec 2012		54,250
2013		Jan – Mar	Collar	55,000	$	70.00 – 113.00	$	—	$	78.91	$	108.01
		Apr – June	Collar	56,000		75.00 – 121.50		—		79.64		108.61
		July – Sept	Collar	56,000		75.00 – 133.10		—		79.64		109.15
		Oct – Dec	Collar	54,000		80.00 – 127.50		—		80.00		117.53
2014		Jan – Mar	Collar	46,000	$	80.00 – 104.50	$	—	$	80.00	$	103.13
		Apr – June	Collar	46,000		80.00 – 104.50		—		80.00		103.13
Natural Gas Contracts:
2012		Oct – Dec	Swap	20,000	$	6.30 – 6.85	$	6.53	$	—	$	—
(1)	Contract volumes are stated in Bbl/d and MMBtu/d for oil and natural gas contracts, respectively.
(2)	Contract prices are stated in $/Bbl and $/MMBtu for oil and natural gas contracts, respectively.

During the third quarter of 2012, we restructured most of our oil derivative collar contracts for the first three quarters of 2013 to increase the weighted average floor price to approximately $80 per Bbl and decrease the weighted average ceiling price. These updated contracts are reflected in the table above.

Additional Disclosures about Derivative Instruments

At September 30,2012 and December 31, 2011, we had derivative financial instruments recorded in our Unaudited Condensed Consolidated Balance Sheets as follows:

					Estimated Fair Value
					Asset (Liability)
					September 30,		December 31,
Type of Contract				Balance Sheet Location	2012		2011
					In thousands
Derivatives not designated as hedging instruments:
	Derivative asset
		Crude oil contracts		Derivative assets – current	$	10,780	$	23,452
		Natural gas contracts		Derivative assets – current		6,040		23,950
		Crude oil contracts		Derivative assets – long-term		12,820		29
	Derivative liability
		Crude oil contracts		Derivative liabilities – current		(1,680)		(22,610)
		Deferred premiums(1)		Derivative liabilities – current		(715)		(3,913)
		Crude oil contracts		Derivative liabilities – long-term		(1,999)		(18,702)
		Deferred premiums(1)		Derivative liabilities – long-term		—		(170)
			Total derivatives not designated as hedging instruments		$	25,246	$	2,036
(1)		Deferred premiums payable relate to various oil floor contracts and are payable on a monthly basis through January 2013.