Derivative Instruments | 9 Months Ended |
Sep. 30, 2014 |
Derivative Instruments and Hedging Activities Disclosure [Abstract] | ' |
Derivative Instruments | ' |
Derivative Instruments |
The Company recognizes all derivative instruments on the balance sheet as either assets or liabilities measured at fair value. The Company has not designated its derivative instruments as hedges for accounting purposes and, as a result, marks its derivative instruments to fair value and recognizes the changes in fair value in the unaudited condensed consolidated statements of income under the caption “Gain (loss) on derivative instruments, net.” |
The Company may utilize swap and collar derivative contracts to economically hedge against the variability in cash flows associated with the forecasted sale of future crude oil and natural gas production. While the use of these derivative instruments limits the downside risk of adverse price movements, their use also limits future revenues from upward price movements. |
With respect to a fixed price swap contract, the counterparty is required to make a payment to the Company if the settlement price for any settlement period is less than the swap price, and the Company is required to make a payment to the counterparty if the settlement price for any settlement period is greater than the swap price. For a collar contract, the counterparty is required to make a payment to the Company if the settlement price for any settlement period is below the floor price, the Company is required to make a payment to the counterparty if the settlement price for any settlement period is above the ceiling price, and neither party is required to make a payment to the other party if the settlement price for any settlement period is between the floor price and the ceiling price. |
The Company’s derivative contracts are settled based upon reported settlement prices on commodity exchanges, with crude oil derivative settlements based on NYMEX West Texas Intermediate (“WTI”) pricing or Inter-Continental Exchange (“ICE”) pricing for Brent crude oil and natural gas derivative settlements based on NYMEX Henry Hub pricing. The estimated fair value of derivative contracts is based upon various factors, including commodity exchange prices, over-the-counter quotations, and, in the case of collars, volatility, the risk-free interest rate, and the time to expiration. The calculation of the fair value of collars requires the use of an option-pricing model. See Note 5. Fair Value Measurements. |
At September 30, 2014, the Company had outstanding derivative contracts as set forth in the tables below. Subsequent to September 30, 2014, the Company settled substantially all of its outstanding crude oil derivative contracts prior to their contractual maturities as discussed below under the heading Derivative liquidations. |
| | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Collars | | |
Crude Oil - NYMEX WTI - as of September 30, 2014 | | Swaps Weighted Average | | Floors | | Ceilings | | |
Price | | |
| | | | | | | | Weighted Average | | | | Weighted Average | | |
| Price | Price | | |
Period and Type of Contract | | Bbls | | | | Range | | | | Range | | | | |
| | | | |
October 2014 - December 2014 | | | | | | | | | | | | | | |
| |
Swaps - WTI | | 3,335,000 | | | $ | 96.22 | | | | | | | | | | | |
| |
January 2015 - December 2015 | | | | | | | | | | | | | | | | |
| |
Collars - WTI | | 4,380,000 | | | | | $ | 87 | | | $ | 87 | | | $95.85 - $103.75 | | $ | 98.36 | | | |
| |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Collars |
|
Crude Oil - ICE Brent - as of September 30, 2014 | Swaps Weighted Average Price | | Floors | | Ceilings |
|
| | | | | | | Weighted Average | | | | Weighted Average |
Price | Price |
Period and Type of Contract | | Bbls | | | Range | | | | Range | | |
| |
October 2014 - December 2014 | | | | | | | | | | | | |
|
Swaps - ICE Brent | | 4,508,000 | | | $ | 103.29 | | | | | | | | | |
|
Collars - ICE Brent | | 552,000 | | | | | $90.00 - $95.00 | | | $ | 90.83 | | | $104.70 - $108.85 | | | $ | 107.13 | |
|
January 2015 - December 2015 | | | | | | | | | | | | |
|
Swaps - ICE Brent | | 24,637,500 | | | $ | 100.85 | | | | | | | | | |
|
Collars - ICE Brent | | 730,000 | | | | | $ | 95 | | | $ | 95 | | | $ | 107.4 | | | $ | 107.4 | |
|
January 2016 - December 2016 | | | | | | | | | | | | | | | | | |
|
Collars - ICE Brent | | 1,464,000 | | | | | $ | 90 | | | $ | 90 | | | $ | 107.7 | | | $ | 107.7 | |
|
| | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
Natural Gas - Henry Hub - as of September 30, 2014 | | Collars | | | | |
| | | |
| | Swaps Weighted Average Price | | Floors | | Ceilings | | | | |
| | | |
| | | | | | | Weighted Average Price | | | | Weighted Average Price | | | | |
| | | |
Period and Type of Contract | | MMBtus | | | Range | | | Range | | | | | |
| | | |
October 2014 - December 2014 | | | | | | | | | | | | | | | | |
| | | |
Swaps - Henry Hub | | 30,820,000 | | | $ | 4.2 | | | | | | | | | | | | | | | |
| | | |
January 2015 - December 2015 | | | | | | | | | | | | | | | | |
| | | |
Swaps - Henry Hub | | 24,500,000 | | | $ | 4.27 | | | | | | | | | | | | | | | |
| | | |
Collars - Henry Hub | | 29,200,000 | | | | | $3.50 - $3.75 | | $ | 3.69 | | | $4.89 - $5.48 | | $ | 5.04 | | | | | |
| | | |
January 2016 - December 2016 | | | | | | | | | | | | | | | | |
| | | |
Swaps - Henry Hub | | 4,550,000 | | | $ | 4.27 | | | | | | | | | | | | | | | |
| | | |
|
Derivative liquidations |
In October 2014, following a decrease in crude oil commodity prices and related increase in the fair value of derivative assets, substantially all of the Company's crude oil derivative contracts outstanding as of September 30, 2014 were settled prior to the expiration of their contractual maturities, resulting in the receipt of cash proceeds totaling approximately $433 million which will be reflected in fourth quarter results. No natural gas derivative contracts in place as of September 30, 2014 were liquidated in October 2014. |
The tables below set forth the Company's remaining crude oil derivative contracts in place as of October 31, 2014 after settlement of matured October 2014 contracts and the liquidations referred to above. |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
Crude Oil - NYMEX WTI - as of October 31, 2014 | | Ceilings | | | | | | | | | | | | | | |
| | | | | | Weighted Average | | | | | | | | | | | | | | |
Period and Type of Contract | | Bbls | | Range | | Price | | | | | | | | | | | | | | |
January 2015 - December 2015 | | | | | | | | | | | | | | | | | | | | |
Written call options - WTI (1) | | 4,380,000 | | | $95.85 - $103.75 | | $ | 98.36 | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
Crude Oil - ICE Brent - as of October 31, 2014 | | Floors | | Ceilings | | | | | | |
| | | | | | Weighted Average | | | | Weighted Average | | | | | | |
Period and Type of Contract | | Bbls | | Range | | Price | | Range | | Price | | | | | | |
November 2014 - December 2014 | | | | | | | | | | | | | | | | |
Collars - ICE Brent | | 366,000 | | | $90.00 - $95.00 | | $ | 90.83 | | | $104.70 - $108.85 | | | $ | 107.13 | | | | | | | |
| | | | | |
January 2015 - December 2015 | | | | | | | | | | | | | | | | |
Written call options - ICE Brent (1) | | 730,000 | | | | | | | $ | 107.4 | | | $ | 107.4 | | | | | | | |
| | | | | |
January 2016 - December 2016 | | | | | | | | | | | | | | | | |
Written call options - ICE Brent (1) | | 1,464,000 | | | | | | | $ | 107.7 | | | $ | 107.7 | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
-1 | The written call options represent the ceiling positions remaining from the Company's crude oil collar contracts. The floor positions of the collars were liquidated. For these written call options, the Company is required to make a payment to the counterparty if the settlement price for any settlement period is above the ceiling price, and neither party is required to make a payment to the other party if the settlement price for any settlement period is below the ceiling price. | | | | | | | | | | | | | | | | | | | | | | |
|
Derivative gains and losses |
The following table presents cash settlements on matured derivative instruments and non-cash gains and losses on open derivative instruments for the periods presented. Cash receipts and payments below reflect the gain or loss on derivative contracts which matured during the period, calculated as the difference between the contract price and the market settlement price of matured contracts. Non-cash gains and losses below represent the change in fair value of derivative instruments which continue to be held at period end and the reversal of previously recognized non-cash gains or losses on derivative contracts that matured during the period. |
| | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, | | | | | | | |
In thousands | | 2014 | | 2013 | | 2014 | | 2013 | | | | | | | |
Cash received (paid) on derivatives: | | | | | | | | | | | | | | | |
Crude oil fixed price swaps | | $ | (4,126 | ) | | $ | (39,298 | ) | | $ | (77,148 | ) | | $ | (46,810 | ) | | | | | | | |
Crude oil collars | | (233 | ) | | (15,081 | ) | | (2,270 | ) | | (14,701 | ) | | | | | | | |
Natural gas fixed price swaps | | 4,549 | | | 14,030 | | | (17,799 | ) | | 9,601 | | | | | | | | |
| | | | | | |
Cash received (paid) on derivatives, net | | 190 | | | (40,349 | ) | | (97,217 | ) | | (51,910 | ) | | | | | | | |
| | | | | | |
Non-cash gain (loss) on derivatives: | | | | | | | | | | | | | | | |
Crude oil fixed price swaps | | 416,637 | | | (146,782 | ) | | 228,845 | | | (38,234 | ) | | | | | | | |
| | | | | | |
Crude oil collars | | 27,386 | | | (13,243 | ) | | 28,300 | | | (11,037 | ) | | | | | | | |
| | | | | | |
Natural gas fixed price swaps | | 25,851 | | | (3,400 | ) | | 7,944 | | | 11,633 | | | | | | | | |
| | | | | | |
Natural gas collars | | 3,935 | | | — | | | 3,929 | | | — | | | | | | | | |
| | | | | | |
Non-cash gain (loss) on derivatives, net | | 473,809 | | | (163,425 | ) | | 269,018 | | | (37,638 | ) | | | | | | | |
| | | | | | |
Gain (loss) on derivative instruments, net | | $ | 473,999 | | | $ | (203,774 | ) | | $ | 171,801 | | | $ | (89,548 | ) | | | | | | | |
| | | | | | |
Balance sheet offsetting of derivative assets and liabilities |
All of the Company’s derivative contracts are recorded at fair value in the condensed consolidated balance sheets under the captions “Derivative assets”, “Noncurrent derivative assets”, “Derivative liabilities”, and “Noncurrent derivative liabilities”. Derivative assets and liabilities with the same counterparty that are subject to contractual terms which provide for net settlement are reported on a net basis in the condensed consolidated balance sheets. |
The following table presents 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 | | 30-Sep-14 | | 31-Dec-13 | | | | | | | | | | | | | | | |
Commodity derivative assets: | | | | | | | | | | | | | | | | | | | |
Gross amounts of recognized assets | | $ | 174,478 | | | $ | 4,213 | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
Gross amounts offset on balance sheet | | (208 | ) | | (597 | ) | | | | | | | | | | | | | | | |
Net amounts of assets on balance sheet | | 174,270 | | | 3,616 | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
Commodity derivative liabilities: | | | | | | | | | | | | | | | | | | | |
Gross amounts of recognized liabilities | | — | | | (125,709 | ) | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
Gross amounts offset on balance sheet | | — | | | 27,345 | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
Net amounts of liabilities on balance sheet | | $ | — | | | $ | (98,364 | ) | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
|
The following table reconciles the net amounts disclosed above to the individual financial statement line items in the condensed consolidated balance sheets. |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
In thousands | | September 30, 2014 | | December 31, 2013 | | | | | | | | | | | | | | | |
Derivative assets | | $ | 143,268 | | | $ | 3,616 | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
Noncurrent derivative assets | | 31,002 | | | — | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
Net amounts of assets on balance sheet | | 174,270 | | | 3,616 | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
Derivative liabilities | | — | | | (90,535 | ) | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
Noncurrent derivative liabilities | | — | | | (7,829 | ) | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
Net amounts of liabilities on balance sheet | | — | | | (98,364 | ) | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
Total derivative assets (liabilities), net (1) | | $ | 174,270 | | | $ | (94,748 | ) | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
(1) As discussed above, subsequent to September 30, 2014 the Company settled substantially all of its outstanding crude oil derivative contracts prior to their contractual maturities. As of October 31, 2014, the fair value of the Company's remaining derivative contracts was a net asset of approximately $20 million, representing a net asset of $27 million associated with natural gas derivatives partially offset by a net liability of $7 million associated with remaining crude oil derivatives. |