Quarterly report pursuant to Section 13 or 15(d)

Derivative Instruments

v2.4.1.9
Derivative Instruments
3 Months Ended
Mar. 31, 2015
Derivative Instruments  
Derivative Instruments

(7)Derivative Instruments

 

(a)Commodity Derivatives

 

The Company periodically enters into natural gas, NGLs, 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, NGLs, 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, NGLs, and oil recognized upon the ultimate sale of the Company’s production.

 

For the three months ended March 31, 2014 and 2015, the Company was party to various natural gas, NGLs, and oil fixed price swap contracts.  When actual commodity prices exceed the fixed price provided by the swap contracts, the Company pays the excess to the counterparty.  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 in order to hedge 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 derivative swap contracts have not been designated as hedges for accounting purposes; therefore, all gains and losses are recognized in the Company’s statements of operations.

 

As of March 312015, the Company’s fixed price natural gas, NGLs, and oil swap positions from April 1, 2015 through December 31, 2020 were as follows (abbreviations in the table refer to the index to which the swap position is tied, as follows: TCO=Columbia Gas Transmission; NYMEX=Henry Hub; CGTLA=Columbia Gas Louisiana Onshore; CCG=Chicago City Gate; NYMEX-WTI=West Texas Intermediate; Mont Belvieu-TET=Mont Belvieu Propane):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Natural gas
MMbtu/day

 

Oil
Bbls/day

 

Propane
Bbls/day

 

Weighted
average index
price

 

Three months ending June 30, 2015:

 

 

 

 

 

 

 

 

 

 

TCO ($/MMBtu)

 

120,000 

 

 —

 

 —

 

$

4.86 

 

Dominion South ($/MMBtu)

 

230,000 

 

 —

 

 —

 

$

5.41 

 

NYMEX ($/MMBtu)

 

770,000 

 

 —

 

 —

 

$

3.75 

 

CGTLA ($/MMBtu)

 

40,000 

 

 —

 

 —

 

$

3.86 

 

NYMEX-WTI ($/Bbl)

 

 —

 

3,000 

 

 —

 

$

64.21 

 

Mont Belvieu-TET ($/Gallon)

 

 —

 

 —

 

23,000 

 

$

0.60 

 

Total

 

1,160,000 

 

3,000 

 

23,000 

 

 

 

 

Three months ending September 30, 2015:

 

 

 

 

 

 

 

 

 

 

TCO ($/MMBtu)

 

120,000 

 

 —

 

 —

 

$

4.93 

 

Dominion South ($/MMBtu)

 

230,000 

 

 —

 

 —

 

$

5.48 

 

NYMEX ($/MMBtu)

 

770,000 

 

 —

 

 —

 

$

3.79 

 

CGTLA ($/MMBtu)

 

40,000 

 

 —

 

 —

 

$

3.93 

 

NYMEX-WTI ($/Bbl)

 

 —

 

3,000 

 

 —

 

$

64.84 

 

Mont Belvieu-TET ($/Gallon)

 

 —

 

 —

 

23,000 

 

$

0.62 

 

Total

 

1,160,000 

 

3,000 

 

23,000 

 

 

 

 

Three months ending December 31, 2015:

 

 

 

 

 

 

 

 

 

 

TCO ($/MMBtu)

 

120,000 

 

 —

 

 —

 

$

5.14 

 

Dominion South ($/MMBtu)

 

230,000 

 

 —

 

 —

 

$

5.74 

 

NYMEX ($/MMBtu)

 

770,000 

 

 —

 

 —

 

$

3.92 

 

CGTLA ($/MMBtu)

 

40,000 

 

 —

 

 —

 

$

4.09 

 

NYMEX-WTI ($/Bbl)

 

 —

 

3,000 

 

 —

 

$

65.67 

 

Mont Belvieu-TET ($/Gallon)

 

 —

 

 —

 

23,000 

 

$

0.64 

 

Total

 

1,160,000 

 

3,000 

 

23,000 

 

 

 

 

Year ending December 31, 2016:

 

 

 

 

 

 

 

 

 

 

TCO ($/MMBtu)

 

60,000 

 

 

 

 —

 

$

4.91 

 

Dominion South ($/MMBtu)

 

272,500 

 

 

 

 —

 

$

5.35 

 

NYMEX ($/MMBtu)

 

750,000 

 

 

 

 —

 

$

3.66 

 

CGTLA ($/MMBtu)

 

170,000 

 

 

 

 —

 

$

4.09 

 

Mont Belvieu-TET ($/Gallon)

 

 —

 

 

 

27,000 

 

$

0.58 

 

2015 Total

 

1,252,500 

 

 

 

27,000 

 

 

 

 

Year ending December 31, 2017:

 

 

 

 

 

 

 

 

 

 

NYMEX ($/MMBtu)

 

410,000 

 

 

 

 

 

$

4.11 

 

CGTLA ($/MMBtu)

 

420,000 

 

 

 

 

 

$

4.27 

 

CCG ($/MMBtu)

 

70,000 

 

 

 

 

 

$

4.57 

 

2016 Total

 

900,000 

 

 

 

 

 

 

 

 

Year ending December 31, 2018:

 

 

 

 

 

 

 

 

 

 

NYMEX ($/MMBtu)

 

1,192,500 

 

 

 

 

 

$

4.40 

 

Year ending December 31, 2019:

 

 

 

 

 

 

 

 

 

 

NYMEX ($/MMBtu)

 

1,347,500 

 

 

 

 

 

$

4.12 

 

Year ending December 31, 2020:

 

 

 

 

 

 

 

 

 

 

NYMEX ($/MMBtu)

 

850,000 

 

 

 

 

 

$

3.85 

 

 

As of March 31, 2015, 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:

 

290,000 

 

$

(0.42)

 

 

 

 

 

 

 

 

Year ending December 31, 2017:

 

125,000 

 

$

(0.49)

 

 

(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, 2014 and March 312015.   None of the Company’s derivative instruments are designated as hedges for accounting purposes.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

December 31, 2014

    

March 31, 2015

 

 

 

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

 

$

692,554 

 

Current assets

 

$

713,966 

 

Commodity contracts

 

Long-term assets

 

 

899,997 

 

Long-term assets

 

 

1,453,300 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total asset derivatives

 

 

 

 

1,592,551 

 

 

 

 

2,167,266 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total liability derivatives

 

 

 

 

 —

 

 

 

 

 —

 

 

 

 

 

 

 

 

 

 

 

 

 

Net derivatives

 

 

 

$

1,592,551 

 

 

 

$

2,167,266 

 

 

 

The following table presents the gross amounts of recognized derivative assets and liabilities, the amounts offset under master netting arrangements with counterparties, and the resulting net amounts presented in the consolidated balance sheets as of the dates presented, all at fair value (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2014

 

March 31, 2015

 

 

 

Gross
amounts on
balance sheet

 

Gross amounts
offset on
balance sheet

 

Net amounts
of assets
on balance
sheet

 

Gross
amounts on
balance sheet

 

Gross amounts
offset on
balance sheet

 

Net amounts
of assets
on balance
sheet

 

Commodity derivative assets

 

$

1,621,665 

 

 

(29,114)

 

 

1,592,551 

 

$

2,196,341 

 

 

(29,075)

 

 

2,167,266 

 

Commodity derivative liabilities

 

$

 —

 

 

 —

 

 

 —

 

$

 —

 

 

 —

 

 

 —

 

 

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 months ended March 31, 2014 and 2015 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

Statement of
operations

 

Three months ended March 31,

 

 

    

location

    

2014

    

2015

 

Commodity derivative fair value gains (losses)

 

Revenue

 

$

(248,929)

 

 

759,554 

 

 

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