Derivative Instruments

12 Months Ended

Dec. 31, 2012

(12) Derivative Instruments

(a) Commodity Derivatives

The Company periodically enters into 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 natural gas produced.

For the years ended December 31, 2010, 2011, and 2012, the Company was party to natural gas 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 swaps have not been designated as hedges for accounting purposes; therefore, all gains and losses were recognized in income currently.

As of December 31, 2012, the Company has entered into fixed price natural gas and oil swaps in order to hedge a portion of its natural gas and oil production from January 1, 2013 through December 31, 2018 as summarized in the following table.

	MMbtu/day	Bbls/day	price
Year ending December 31, 2013:
CGTAP	122,631	—	$	5.02
Dominion South	191,702	—	4.77
NYMEX-WTI	—	300	90.30
2013 Total	314,333	300
Year ending December 31, 2014:
CGLA	10,000		$	3.87
CGTAP	200,000		5.16
Dominion South	160,000		5.15
2014 Total	370,000
Year ending December 31, 2015:
CGLA	40,000		$	4.00
CGTAP	120,000		5.01
Dominion South	230,000		5.60
2015 Total	390,000
Year ending December 31, 2016:
CGLA	170,000		$	4.09
CGTAP	60,000		4.91
Dominion South	272,500		5.35
2016 Total	502,500
Year ending December 31, 2017:
CGLA	420,000		$	4.27
Year ending December 31, 2018:
CGLA	75,000		$	4.90

(b) Interest Rate Derivatives

From time to time, the Company has entered into various floating-to-fixed interest rate swap derivative contracts to manage exposures to changes in interest rates from variable rate obligations. Under the swaps, the Company made payments to the swap counterparty when the variable LIBOR three-month rate fell below the fixed rate or received payments from the swap counterparty when the variable LIBOR three-month rate went above the fixed rate. The Company had no outstanding interest rate swap agreements at December 31, 2012.

(c) 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, 2011 and 2012. None of the Company’s derivative instruments are designated as hedges for accounting purposes.

	2011			2012
	Balance			Balance
	sheet			sheet
	location	Fair value		location	Fair value
		(In thousands)			(In thousands)
Asset derivatives not designated as hedges for accounting purposes:
Commodity contracts	Current assets	$	248,550	Current assets	$	160,579
Commodity contracts	Long-term assets	541,423		Long-term assets	371,436
Total asset derivatives		$	789,973		$	532,015

The following is a summary of realized and unrealized gains (losses) on derivative instruments and where such values are recorded in the consolidated statements of operations for the years ended December 31, 2010, 2011, and 2012 (in thousands):

	Statement of
	operations
	location	2010			2011		2012
Realized gains on commodity contracts	Revenue	$	15,063		49,944		178,491
Unrealized gains on commodity contracts	Revenue	62,536			446,120		1,055
Realized gains on commodity contracts	Discontinued	58,650			66,654		92,166
	operations
Unrealized gains (losses) on commodity contracts	Discontinued operations	108,035			113,476		(45,808	)
Total gains on commodity contracts		244,284			676,194		225,904
Realized losses on interest rate contracts	Other expense	(9,552		)	(4,306	)	—
Unrealized gains on interest rate contracts	Other income	6,875			4,212		—
Total losses on interest rate contracts		(2,677		)	(94	)	—
Net gains on derivative contracts		$	241,607		676,100		225,904

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

- Definition

The entire disclosure for the entity's entire derivative instruments and hedging activities. Describes an entity's risk management strategies, derivatives in hedging activities and non-hedging derivative instruments, the assets, obligations, liabilities, revenues and expenses arising therefrom, and the amounts of and methodologies and assumptions used in determining the amounts of such items.

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