Commodity Derivative Contracts

12 Months Ended

Dec. 31, 2016

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Commodity Derivative Contracts

Note 8. 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 Consolidated Statements of Operations.

Historically, we have entered 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 and to provide more certainty to our future cash flows.  We do not hold or issue derivative financial instruments for trading purposes.  Generally, these contracts have consisted of various combinations 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.

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 December 31, 2016, 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 December 31, 2016, none of which are classified as hedging instruments in accordance with the FASC Derivatives and Hedging topic:

Months	Index Price	Volume (Barrels per day)	Contract Prices ($/Bbl)
			Range (1)				Weighted Average Price
							Swap		Sold Put		Floor		Ceiling
Oil Contracts:
2017 Fixed-Price Swaps
Jan – Mar	NYMEX	22,000	$	41.15	–	45.45	$	42.67	$	—	$	—	$	—
Jan – Mar	LLS	10,000		42.35	–	46.15	43.77		—		—		—
Apr – June	NYMEX	22,000		41.20	–	46.50	43.99		—		—		—
Apr – June	LLS	7,000		42.65	–	46.65	45.35		—		—		—
2017 Collars
Jan – Mar	NYMEX	4,000	$	40.00	–	55.40	$	—	$	—	$	40.00	$	54.80
Jan – Mar	LLS	3,000		40.00	–	57.35	—		—		40.00		57.23
Oct – Dec	NYMEX	1,000		40.00	–	70.00	—		—		40.00		70.00
2017 Three-Way Collars(2)
July – Sept	NYMEX	13,500	$	40.00	–	70.25	$	—	$	30.00	$	40.00	$	69.13
July – Sept	LLS	2,000		41.00	–	69.25	—		31.00		41.00		69.25
Oct – Dec	NYMEX	10,000		40.00	–	70.20	—		30.00		40.00		69.64
Oct – Dec	LLS	1,000		41.00	–	70.25	—		31.00		41.00		70.25

(1) Ranges presented for fixed-price 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.

(2) 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.