Quarterly report pursuant to Section 13 or 15(d)

Hedging Activities

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Hedging Activities
 3 Months Ended
Mar. 31, 2015
General Discussion of Derivative Instruments and Hedging Activities [Abstract]  
Hedging Activities
HEDGING ACTIVITIES
Oil Price Hedging Activities
The Company seeks to reduce its exposure to unfavorable changes in oil and natural gas prices, which are subject to significant and often volatile fluctuation, by entering into fixed price swaps and basis swaps. These contracts allow the Company to predict with greater certainty the effective oil and natural gas prices to be received for hedged production and benefit operating cash flows and earnings when market prices are less than the fixed prices provided in the contracts. However, the Company will not benefit from market prices that are higher than the fixed prices in the contracts for hedged production.
The Company accounts for its oil and natural gas derivative instruments as cash flow hedges for accounting purposes under FASB ASC 815 and related pronouncements. All derivative contracts are marked to market each quarter end and are included in the accompanying consolidated balance sheets as derivative assets and liabilities.
During 2014 and 2015, the Company entered into fixed price swap contracts for 2014 through 2018 with four financial institutions. The Company’s fixed price swap contracts are tied to the commodity prices on Argus and NYMEX. The Company will receive the fixed price amount stated in the contract and pay to its counterparty the current market price as listed on Argus for Louisiana Light Sweet Crude for oil and on the NYMEX Henry Hub for natural gas. At March 31, 2015, the Company had the following fixed price swaps in place:
 
 
Daily Volume
(Bbls/day)
 
Weighted
Average Price
April 2015 - June 2016
1,000

 
$
62.25


 
Daily Volume (MMBtu/day)
 
Weighted
Average Price
April 2015
191,250

 
$
4.05

May 2015 - June 2015
201,250

 
$
4.05

July 2015 - August 2015
216,875

 
$
4.04

September 2015
246,875

 
$
3.97

October 2015 - December 2015
262,500

 
$
3.96

January 2016 - March 2016
252,500

 
$
3.82

April 2016
242,500

 
$
3.81

May 2016 - December 2016
172,500

 
$
3.73

January 2017 - June 2017
142,500

 
$
3.67

July 2017 - December 2017
80,000

 
$
3.45

January 2018 - December 2018
30,000

 
$
3.40


In addition, the Company has entered into natural gas basis swap positions, which settle on the pricing index to basis differential of MichCon to the NYMEX Henry Hub natural gas price. As of March 31, 2015, the Company's natural gas basis swap positions were as follows:
 
Daily Volume (MMBtu/day)
 
Hedged Differential
April 2015 - December 2016
30,000

 
$
0.02

April 2015 - December 2016
10,000

 
$
0.01


At March 31, 2015 the fair value of derivative assets and liabilities related to the fixed price swaps and basis swaps was as follows:
 
 
(In thousands)
Short-term derivative instruments - asset
$
93,030

Long-term derivative instruments - asset
$
41,956

Short-term derivative instruments - liability
$
823



All fixed price swaps and basis swaps have been executed in connection with the Company’s oil and natural gas price hedging program. For fixed price swaps and basis swaps qualifying as cash flow hedges pursuant to FASB ASC 815, the realized contract price is included in oil and gas sales in the period for which the underlying production was hedged.
For derivatives designated as cash flow hedges and meeting the effectiveness guidelines of FASB ASC 815, changes in fair value are recognized in accumulated other comprehensive income (loss) until the hedged item is recognized in earnings. The Company had no cash flow hedges in place for the three months ending March 31, 2015 and 2014, as all fixed price swaps and basis swaps were deemed ineffective at their inception.
At March 31, 2015, no amounts related to fixed price swaps or basis swaps remain in accumulated other comprehensive loss.
Hedge effectiveness is measured at least quarterly based on the relative changes in fair value between the derivative contract and the hedged item over time. Any change in fair value resulting from ineffectiveness is recognized immediately in earnings. The Company recognized a gain of $31.3 million related to hedge ineffectiveness for the three months ended March 31, 2015 which is included in oil and condensate and gas sales in the consolidated statements of operations. The Company recognized a loss of $8.7 million related to hedge ineffectiveness for the three months ended March 31, 2014 which is included in oil and condensate and gas sales in the consolidated statements of operations.