Quarterly report pursuant to Section 13 or 15(d)

Derivative Instruments

v2.4.0.8
Derivative Instruments
 9 Months Ended
Sep. 30, 2014
Derivative Instruments  
Derivative Instruments

(7)Derivative Instruments

 

(a)Commodity Derivatives

 

The Company periodically enters into natural gas and oil derivative contracts with counterparties to hedge the price risk associated with a portion of its production. These derivatives are not held for trading purposes. To the extent that changes occur in the market prices of natural gas and oil, the Company is exposed to market risk on these open contracts. This market risk exposure is generally offset by the change in market prices of natural gas and oil recognized upon the ultimate sale of the natural gas and oil produced.

 

For the nine months ended September 30, 2013 and 2014, the Company was party to natural gas and oil fixed price swaps. When actual commodity prices exceed the fixed price provided by the swap contracts, the Company pays the excess to the counterparty, and when actual commodity prices are below the contractually provided fixed price the Company receives the difference from the counterparty.  In addition, the Company has entered into basis swap contracts hedging the difference between the NYMEX index price and a local index price.  When the actual differential exceeds the fixed price provided by the basis swap contract, the Company receives the difference from the counterparty; when the differential is less than the fixed price provided by the basis swap contract, the Company pays the difference to the counterparty.  The Company’s natural gas and oil swaps have not been designated as hedges for accounting purposes; therefore, all gains and losses were recognized in our statements of operations.

 

As of September 30, 2014, the Company’s fixed price natural gas and oil swaps positions from October 1, 2014 through December 31, 2019 were as follows (abbreviations in the table refer to the index to which the swap position is tied: TCO=Columbia Gas Transmission; NYMEX=Henry Hub; CGTLA=Columbia Gas Louisiana Onshore; CCG=Chicago City Gate; NYMEX-WTI=West Texas Intermediate):

 

 

 

 

 

 

 

 

 

 

 

    

 

    

 

    

Weighted

  

 

 

Natural gas

 

Oil

 

average index

 

 

 

MMbtu/day

 

Bbls/day

 

price

 

Three Months ending December 31, 2014

 

 

 

 

 

 

 

 

TCO

 
210,000 

 

 

 

$
5.24 

 

Dominion South

 
160,000 

 

 

 

$
5.27 

 

NYMEX

 
340,000 

 

 

 

$
4.18 

 

CGTLA

 
10,000 

 

 

 

$
3.98 

 

NYMEX-WTI

 

 —

 
3,000 

 

$
93.18 

 

Total

 
720,000 

 
3,000 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year ending December 31, 2015:

 

 

 

 

 

 

 

 

TCO

 
120,000 

 

 

 

$
5.01 

 

Dominion South

 
230,000 

 

 

 

$
5.60 

 

NYMEX

 
260,000 

 

 

 

$
4.13 

 

CGTLA

 
40,000 

 

 

 

$
4.00 

 

2015 Total

 
650,000 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year ending December 31, 2016:

 

 

 

 

 

 

 

 

TCO

 
60,000 

 

 

 

$
4.91 

 

Dominion South

 
272,500 

 

 

 

$
5.35 

 

NYMEX

 
140,000 

 

 

 

$
4.17 

 

CGTLA

 
170,000 

 

 

 

$
4.09 

 

2016 Total

 
642,500 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year ending December 31, 2017:

 

 

 

 

 

 

 

 

NYMEX

 
290,000 

 

 

 

$
4.38 

 

CGTLA

 
420,000 

 

 

 

$
4.27 

 

CCG

 
70,000 

 

 

 

$
4.57 

 

2017 Total

 
780,000 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year ending December 31, 2018:

 

 

 

 

 

 

 

 

NYMEX

 
1,062,500 

 

 

 

$
4.50 

 

 

 

 

 

 

 

 

 

 

Year ending December 31, 2019:

 

 

 

 

 

 

 

 

NYMEX

 
807,500 

 

 

 

$
4.41 

 

 

As of September 30, 2014, the Company’s  natural gas basis swap positions, which settle on the pricing index to basis differential of TCO to the NYMEX Henry Hub natural gas price, are as follows:

 

 

 

 

 

 

 

 

 

 

    

Natural gas MMbtu/day

    

Hedged Differential

 

 

 

 

 

 

 

 

Year ending December 31, 2015:

 
390,000 

 

$
(0.35)

 

 

 

 

 

 

 

 

Year ending December 31, 2016:

 
190,000 

 

$
(0.42)

 

 

 

 

 

 

 

 

Year ending December 31, 2017:

 
97,500 

 

$
(0.50)

 

 

(b)Summary

 

The following is a summary of the fair values of the Company’s derivative instruments and where such values are recorded in the consolidated balance sheets as of December 31, 2013 and September 30, 2014. None of the Company’s derivative instruments are designated as hedges for accounting purposes.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

December 31, 2013

    

September 30, 2014

  

 

 

Balance sheet
location

 

Fair value

 

Balance sheet
location

 

Fair value

 

 

 

 

 

(In thousands)

 

 

 

(In thousands)

 

Asset derivatives not designated as hedges for accounting purposes:

 

                                        

 

 

 

 

                                        

 

 

 

 

Commodity contracts

 

Current assets

 

$
183,000 

 

Current assets

 

$
280,959 

 

Commodity contracts

 

Long-term assets

 

 
677,780 

 

Long-term assets

 

 
458,209 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total asset derivatives

 

 

 

 
860,780 

 

 

 

 
739,168 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liability derivatives not designated as hedges for accounting purposes:

 

 

 

 

 

 

 

 

 

 

 

Commodity contracts

 

Current liabilities

 

 
646 

 

Current liabilities

 

 

 —

 

Commodity contracts

 

Long-term liabilities

 

 

—

 

Long-term liabilities

 

 
86 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total liability derivatives

 

 

 

 
646 

 

 

 

 
86 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net derivatives

 

 

 

$
860,134 

 

 

 

$
739,082 

 

 

The following tables present the gross amounts of recognized derivative assets and liabilities, the amounts offset under netting arrangements with counterparties, and the resulting net amounts presented in the consolidated balance sheets for the periods presented, all at fair value (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2013

 

September 30, 2014

 

 

    

Gross
amounts on
balance sheet

    

Gross amounts
offset on
balance sheet

    

Net amounts
of assets
(liabilities)
on balance
sheet

    

Gross
amounts on
balance sheet

    

Gross amounts
offset on
balance sheet

    

Net amounts
of assets
(liabilities)
on balance
sheet

 

Commodity derivative assets

 

$
887,034 

 
(26,254)

 
860,780 

 

$
792,075 

 
(52,907)

 
739,168 

 

Commodity derivative liabilities

 

$
(646)

 

 —

 
(646)

 

$
(2,677)

 
2,591 

 
(86)

 

 

The following is a summary of derivative fair value gains (losses) and where such values are recorded in the condensed consolidated statements of operations for the three and nine months ended September 30, 2013 and 2014 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Statement of
operations

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

 

    

location

    

2013

    

2014

    

2013

    

2014

 

Commodity derivative fair value gains (losses)

 

Revenue

 

$
161,968 

 

 
308,975 

 

 
285,510 

 

 
(63,720)

 

 

The fair value of commodity derivative instruments was determined using Level 2 inputs.