Derivative Instruments and Risk Management Activities

3 Months Ended

Mar. 31, 2013

Derivative Instruments and Risk Management Activities

Derivative Instruments and Risk Management Activities

(8) Derivative Instruments and Risk Management Activities

(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 three months ended March 31, 2012 and 2013, 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.

The Company has no collateral from any counterparties. All but one of our commodity derivative positions are with institutions that have a position in our Credit Facility and are secured by the collateral pledged on the Credit Facility and cross default provisions between the Credit Facility and the derivative instruments. At March 31, 2013, there were no past due receivables from or payables to any of our counterparties.

As of March 31, 2013, the Company’s positions in fixed price natural gas and oil swaps from April 1, 2013 through December 31, 2018 are summarized in the following table.

	MMbtu/day	Bbls/day	Price
Year ending December 31, 2013:
CGTAP	192,003	—	$	4.44
Dominion South	191,489	—	4.75
NYMEX-WTI	—	300	90.30
2013 Total	383,492	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
NYMEX	20,000		4.39
2016 Total	522,500
Year ending December 31, 2017:
CGLA	420,000		$	4.27
NYMEX	100,000		4.56
2017 Total	520,000
Year ending December 31, 2018:
NYMEX	420,000		$	4.79

(b) Summary

The following is a summary of the fair values of our derivative instruments, which are not designated as hedges for accounting purposes and where such values are recorded in the consolidated balance sheets as of December 31, 2012 and March 31, 2013.

	December 31, 2012			March 31, 2013
	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	$	160,579	Current assets	$	89,751
Commodity contracts	Long-term assets	371,436		Long-term assets	329,575

Total asset derivatives		532,015			419,326
Liability derivatives not designated as hedges for accounting purposes:
Commodity contracts	Current liabilities	—		Current liabilities	7,382

Net asset value of derivatives		$	532,015		$	411,944

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 three months ended March 31, 2012 and 2013 (in thousands):

	Statement of
	operations	March 31
	location	2012		2013
Realized gains on commodity contracts	Revenue	$	46,852	48,131
Unrealized gains (losses) on commodity contracts	Revenue	170,402		(120,072	)
Realized gains on commodity contracts	Discontinued operations	33,227		—
Unrealized gains on commodity contracts	Discontinued operations	32,561		—
Total gains (losses) on commodity contracts, net		$	283,042	(71,941	)

The following table summarizes the valuation of investments and financial instruments by the fair value hierarchy described in note 1 at March 31, 2013:

	Fair value measurements using
	Quoted
	prices
	in active		Significant
	markets for		other	Significant
	identical		observable	unobservable
	assets		inputs	inputs
Description	(Level 1)		(Level 2)	(Level 3)	Total
Net derivatives asset:
Fixed price commodity swaps	$	—	411,944	—	411,944

- 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.

+ References

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