Derivative Instruments and Hedging Activities

12 Months Ended

Dec. 31, 2012

General Discussion of Derivative Instruments and Hedging Activities [Abstract]

Derivative Instruments and Hedging Activities

Note 9. Derivative Instruments and Hedging Activities

Oil and Natural Gas Derivative Contracts

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 Consolidated Statements of Operations.

From time to time, 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 two years in the future from the current quarter, 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 do not have any natural gas derivative contracts for 2013 or beyond. Because our current and forecasted production is primarily oil, we currently use only oil derivative contracts in our commodity market risk management program.

The following is a summary of “Derivatives expense (income)” included in our Consolidated Statements of Operations:

	Year Ended December 31,
In thousands	2012			2011			2010
Oil
Payment on settlements of derivative contracts	$	9,991		$	25,128		$	93,417
Fair value adjustments to derivative contracts – income	(10,904		)	(58,980		)	(44,441		)
Total derivatives expense (income) – oil	(913		)	(33,852		)	48,976
Natural gas
Receipt on settlements of derivative contracts	(27,871		)	(27,505		)	(61,805		)
Fair value adjustments to derivative contracts – expense (income)	23,950			8,860			(8,585		)
Total derivatives expense (income) – natural gas	(3,921		)	(18,645		)	(70,390		)
Ineffectiveness on interest rate swaps	—			—			(2,419		)
Derivatives expense (income)	$	(4,834	)	$	(52,497	)	$	(23,833	)

Commodity Derivative Contracts Not Classified as Hedging Instruments

					Contract Prices per Barrel
		Type of	Volume			Weighted Average Price
Year	Months	Contract	(Barrels per day)		Range	Floor		Ceiling
Oil Contracts:
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	52,000	$	80.00 – 104.50	$	80.00	$	102.44
	Apr – June	Collar	52,000		80.00 – 104.50	80.00		102.44
	July – Sept	Collar	48,000		80.00 – 98.80	80.00		97.46
	Oct – Dec	Collar	48,000		80.00 – 98.80	80.00		97.46

Additional Disclosures about Derivative Instruments:

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

		Estimated Fair Value Asset (Liability) December 31,
Type of Contract	Balance Sheet Location	2012			2011
		In thousands
Derivatives not designated as hedging instruments:
Derivative Assets
Crude oil contracts	Derivative assets – current	$	19,477		$	23,452
Natural gas contracts	Derivative assets – current	—			23,950
Crude oil contracts	Derivative assets – long-term	36			29
Derivative Liabilities
Crude oil contracts	Derivative liabilities – current	(2,659		)	(22,610		)
Deferred premiums (1)	Derivative liabilities – current	(183		)	(3,913		)
Crude oil contracts	Derivative liabilities – long-term	(23,781		)	(18,702		)
Deferred premiums (1)	Derivative liabilities – long-term	—			(170		)
Total derivatives not designated as hedging instruments		$	(7,110	)	$	2,036

(1) Deferred premiums payable relate to various oil floor contracts and are payable on a monthly basis through January 2013.