Quarterly report pursuant to Section 13 or 15(d)

Derivative Instruments

v2.4.0.8
Derivative Instruments
6 Months Ended
Jun. 30, 2014
Derivative Instruments  
Derivative Instruments

(7)         Derivative Instruments

 

(a)         Commodity Derivatives

 

The Company periodically enters into oil and natural gas 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, 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 recognized upon the ultimate sale of the oil and natural gas produced.

 

For the six months ended June 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. 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 income currently.

 

As of June 30, 2014, the Company’s fixed price natural gas and oil swaps positions from July 1, 2014 through December 31, 2019 are summarized in the following table.

 

 

 

Natural gas
MMbtu/day

 

Oil
Bbls/day

 

Weighted
average index
price

 

Three Months ending September 30, 2014:

 

 

 

 

 

 

 

TCO

 

210,000

 

 

$

5.01

 

Dominion South

 

160,000

 

 

$

5.04

 

NYMEX

 

340,000

 

 

$

4.08

 

CGTLA

 

10,000

 

 

$

3.82

 

NYMEX-WTI

 

 

3,000

 

$

94.13

 

Total

 

720,000

 

3,000

 

 

 

 

 

 

 

 

 

 

 

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

 

$

94.13

 

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

 

710,000

 

 

 

$

4.60

 

 

 

 

 

 

 

 

 

Year ending December 31, 2019:

 

 

 

 

 

 

 

NYMEX

 

467,500

 

 

 

$

4.41

 

 

In addition, the Company has entered into natural gas basis differential positions which settle on the pricing index to basis differential of Columbia Gas (TCO) to the NYMEX Henry Hub natural gas price as follows:

 

 

 

Natural gas
MMbtu/day

 

Hedged
Differential

 

 

 

 

 

 

 

Year ending December 31, 2015:

 

390,000

 

$

(0.35

)

 

 

 

 

 

 

Year ending December 31, 2016:

 

170,000

 

$

(0.41

)

 

 

 

 

 

 

Year ending December 31, 2017:

 

90,000

 

$

(0.50

)

 

(b)         Summary

 

The following is a summary of the fair values of derivative instruments not designated as hedges for accounting purposes and where such values are recorded in the consolidated balance sheets as of December 31, 2013 and June 30, 2014. None of the Company’s derivative instruments are designated as hedges for accounting purposes.

 

 

 

December 31, 2013

 

June 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

 

$

175,286

 

Commodity contracts

 

Long-term assets

 

677,780

 

Long-term assets

 

354,254

 

 

 

 

 

 

 

 

 

 

 

Total asset derivatives

 

 

 

860,780

 

 

 

529,540

 

 

 

 

 

 

 

 

 

 

 

Liability derivatives not designated as hedges for accounting purposes:

 

 

 

 

 

 

 

 

 

Commodity contracts

 

Current liabilities

 

646

 

Current liabilities

 

11,907

 

Commodity contracts

 

Long-term liabilities

 

 

Long-term liabilities

 

30,076

 

 

 

 

 

 

 

 

 

 

 

Total liability derivatives

 

 

 

646

 

 

 

41,983

 

 

 

 

 

 

 

 

 

 

 

Net derivatives

 

 

 

$

860,134

 

 

 

$

487,557

 

 

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 condensed consolidated balance sheets for the periods presented, all at fair value (in thousands):

 

 

 

December 31, 2013

 

June 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

 

$

632,885

 

(103,345

)

529,540

 

Commodity derivative liabilities

 

$

(646

)

 

(646

)

$

(55,818

)

13,835

 

(41,983

)

 

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

 

 

 

Statement of

 

Three months ended

 

Six months ended

 

 

 

operations

 

June 30

 

June 30

 

 

 

location

 

2013

 

2014

 

2013

 

2014

 

Commodity derivative fair value gains (losses)

 

Revenue

 

$

195,483

 

(123,766

)

123,542

 

(372,695

)

 

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