DERIVATIVE INSTRUMENTS AND PRICE RISK MANAGEMENT
|9 Months Ended|
Sep. 30, 2013
|DERIVATIVE INSTRUMENTS AND PRICE RISK MANAGEMENT [Abstract]|
|DERIVATIVE INSTRUMENTS AND PRICE RISK MANAGEMENT||
NOTE 12 DERIVATIVE INSTRUMENTS AND PRICE RISK MANAGEMENT
The Company utilizes commodity swap contracts and costless collars (purchased put options and written call options) to (i) reduce the effects of volatility in price changes on the crude oil commodities it produces and sells, (ii) reduce commodity price risk and (iii) provide a base level of cash flow in order to assure it can execute at least a portion of its capital spending.
On November 1, 2009, due to the volatility of price differentials in the Williston Basin, the Company de-designated all derivatives that were previously classified as cash flow hedges and, in addition, the Company has elected not to designate any subsequent derivative contracts as cash flow hedges. Beginning on November 1, 2009, all derivative positions are carried at their fair value on the balance sheet and are marked-to-market at the end of each period. Any realized gains and losses are recorded to loss on settled derivatives and unrealized gains or losses are recorded to unrealized gain (loss) on derivative instruments on the statement of comprehensive income rather than as a component of other comprehensive income (loss) or other income (expense).
The Company has master netting agreements on individual crude oil contracts with certain counterparties and therefore the current asset and liability are netted on the balance sheet and the non-current asset and liability are netted on the balance sheet for contracts with these counterparties.
Crude Oil Derivative Contracts Cash-flow Not Designated as Hedges
The Company had a realized (loss) gain on settled derivatives of $(8,096,075) and $1,701,296 for the three months ended September 30, 2013 and 2012, respectively. The Company had an unrealized loss on mark-to-market of derivative instruments of $29,353,161 and $22,308,470 for the three months ended September 30, 2013 and 2012, respectively. The Company had a realized loss on settled derivatives of $8,966,175 and $4,729,186 for the nine months ended September 30, 2013 and 2012, respectively. The Company had an unrealized (loss) gain on mark-to-market of derivative instruments of $(27,254,147) and $18,125,928 for the nine months ended September 30, 2013 and 2012, respectively.
The following table reflects open commodity swap contracts as of September 30, 2013, the associated volumes and the corresponding fixed price.
As of September 30, 2013, the Company had a total volume on open commodity swaps of 6.9 million barrels at a weighted average price of approximately $89.95.
In addition to the open commodity swap contracts the Company has entered into costless collars. The costless collars are used to establish floor and ceiling prices on anticipated crude oil production. There were no premiums paid or received by the Company related to the costless collar agreements. The following table reflects open costless collar agreements as of September 30, 2013.
The following table sets forth the amounts, on a gross basis, and classification of the Company's outstanding derivative financial instruments at September 30, 2013 and December 31, 2012, respectively. Certain amounts may be presented on a net basis on the financial statements when such amounts are with the same counterparty and subject to a master netting arrangement:
The following disclosures are applicable to the Company's financial statements, as of September 30, 2013 and 2012, respectively:
The use of derivative transactions involves the risk that the counterparties will be unable to meet the financial terms of such transactions. When the Company has netting arrangements with its counterparties that provide for offsetting payables against receivables from separate derivative instruments these assets and liabilities are netted on the balance sheet. The tables presented below provide reconciliation between the gross assets and liabilities and the amounts reflected on the balance sheet. The amounts presented exclude derivative settlement receivables and payables as of the balance sheet dates.
The entire disclosure for derivative instruments and hedging activities including, but not limited to, risk management strategies, non-hedging derivative instruments, assets, liabilities, revenue and expenses, and methodologies and assumptions used in determining the amounts.
Reference 1: http://www.xbrl.org/2003/role/presentationRef