Commodity Derivative Contracts

6 Months Ended

Jun. 30, 2015

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Commodity Derivative Contracts

Note 5. Commodity 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 settlements of expired contracts, are shown under "Commodity derivatives expense (income)" in our Unaudited Condensed 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 historically consisted of price floors, collars, three-way collars, fixed-price swaps and fixed-price swaps enhanced with a sold put. The production that we hedge has varied from year to year depending on our levels of debt, financial strength and expectation of future commodity prices. For the past several years, we have generally hedged a substantial portion of our forecasted production over an approximately 18 month to two year future period, as we believed it was beneficial to protect our future cash flow at then-projected oil prices for those future periods. During the significant and rapid decline in oil prices in late-2014 and the first quarter of 2015, we deferred entering into new derivative contracts, and therefore currently have less of our production hedged and for a shorter future time period than we have generally had over the last several years. During the second quarter of 2015, we entered into new oil hedging positions covering the second and third quarters of 2016 in order to provide more certainty to our future cash flows in those quarters.

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, and all of our commodity derivative contracts are with parties that are lenders under our Bank Credit Agreement (or affiliates of such lenders). As of June 30, 2015, all of our outstanding derivative contracts were subject to enforceable master netting arrangements whereby payables on those contracts can be offset against receivables from separate derivative contracts with the same counterparty. It is our policy to classify derivative assets and liabilities on a gross basis on our balance sheets, even if the contracts are subject to enforceable master netting arrangements.

The following table summarizes our commodity derivative contracts as of June 30, 2015, none of which are classified as hedging instruments in accordance with the Financial Accounting Standards Board Codification ("FASC") Derivatives and Hedging topic:

Months	Index Price	Volume (2)	Contract Prices (1)
			Range (3)				Weighted Average Price
							Swap		Sold Put		Floor		Ceiling
Oil Contracts:
2015 Enhanced Swaps(4)
July – Sept	NYMEX	10,000	$	90.00	–	90.10	$	90.02	$	65.30	$	—	$	—
July – Sept	LLS	16,000		93.20	–	94.00	93.65		68.00		—		—
Oct – Dec	NYMEX	12,000		91.15	–	94.00	92.42		68.00		—		—
Oct – Dec	LLS	8,000		93.80	–	96.50	94.94		68.00		—		—
2015 Collars
July – Sept	NYMEX	28,000	$	80.00	–	95.25	$	—	$	—	$	80.00	$	95.05
July – Sept	LLS	4,000		85.00	–	100.00	—		—		85.00		99.50
2015 Three-Way Collars(5)
Oct – Dec	NYMEX	10,000	$	85.00	–	102.00	$	—	$	68.00	$	85.00	$	99.00
Oct – Dec	LLS	8,000		88.00	–	104.25	—		68.00		88.00		100.99
2016 Enhanced Swaps(4)
Jan – Mar	NYMEX	12,000	$	90.65	–	93.35	$	92.43	$	68.00	$	—	$	—
Jan – Mar	LLS	8,000		93.70	–	95.45	94.81		68.50		—		—
Apr – June	NYMEX	2,000		90.35	–	90.35	90.35		68.00		—		—
Apr – June	LLS	6,000		93.30	–	93.50	93.38		70.00		—		—
2016 Fixed-Price Swaps
Apr – June	NYMEX	11,500	$	60.30	–	63.75	$	61.84	$	—	$	—	$	—
Apr – June	LLS	3,500		64.20	–	66.15	64.99		—		—		—
2016 Three-Way Collars (5)
Jan – Mar	NYMEX	10,000	$	85.00	–	101.25	$	—	$	68.00	$	85.00	$	99.85
Jan – Mar	LLS	6,000		88.00	–	103.15	—		68.00		88.00		102.10
Apr – June	NYMEX	2,000		85.00	–	95.50	—		68.00		85.00		95.50
Apr – June	LLS	2,000		88.00	–	98.25	—		70.00		88.00		98.25
2016 Collars
Apr – June	NYMEX	5,000	$	55.00	–	72.25	$	—	$	—	$	55.00	$	71.01
Apr – June	LLS	2,000		58.00	–	73.00	—		—		58.00		73.00
July – Sept	NYMEX	4,500		55.00	–	72.65	—		—		55.00		71.22
July – Sept	LLS	3,000		58.00	–	74.30	—		—		58.00		73.85
Natural Gas Contracts:
2015 Collars
July – Dec	NYMEX	8,000	$	4.00	–	4.53	$	—	$	—	$	4.00	$	4.51

(1) Contract prices are stated in $/Bbl and $/MMBtu for oil and natural gas contracts, respectively.

(2) Contract volumes are stated in Bbls/d and MMBtus/d for oil and natural gas contracts, respectively.

(3) Ranges presented for fixed-price swaps and enhanced swaps represent the lowest and highest fixed prices of all open contracts for the period presented. For collars and three-way collars, ranges represent the lowest floor price and highest ceiling price for all open contracts for the period presented.

(4) An enhanced swap is a fixed-price swap contract combined with a sold put feature (at a lower price) with the same counterparty. The value associated with the sold put is used to increase or enhance the fixed price of the swap. At the contract settlement date, (1) if the index price is higher than the swap price, we pay the counterparty the difference between the index price and swap price for the contracted volumes, (2) if the index price is lower than the swap price but at or above the sold put price, the counterparty pays us the difference between the index price and the swap price for the contracted volumes and (3) if the index price is lower than the sold put price, the counterparty pays us the difference between the swap price and the sold put price for the contracted volumes.

(5) A three-way collar is a costless collar contract combined with a sold put feature (at a lower price) with the same counterparty. The value received for the sold put is used to enhance the contracted floor and ceiling price of the related collar. At the contract settlement date, (1) if the index price is higher than the ceiling price, we pay the counterparty the difference between the index price and ceiling price for the contracted volumes, (2) if the index price is between the floor and ceiling price, no settlements occur, (3) if the index price is lower than the floor price but at or above the sold put price, the counterparty pays us the difference between the index price and the floor price for the contracted volumes and (4) if the index price is lower than the sold put price, the counterparty pays us the difference between the floor price and the sold put price for the contracted volumes.