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10-Q - FORM 10-Q - GOODRICH PETROLEUM CORPd230213d10q.htm
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Derivative Activities
9 Months Ended
Sep. 30, 2011
Derivative Activities [Abstract] 
Derivative Activities

NOTE 7—Derivative Activities

We use commodity and financial derivative contracts to manage fluctuations in commodity prices and interest rates. We did not designate our derivative contracts for hedge accounting. All gains and losses both realized and unrealized from our derivative contracts have been recognized in other income (expense) on our Consolidated Statements of Operations.

The following table summarizes the realized and unrealized gains and losses we recognized on our oil and natural gas derivatives for the three and nine month periods ended September 30, 2011 and 2010.

 

     Three Months Ended
September 30,
     Nine Months Ended
September 30,
 

Oil and Natural Gas Derivatives (in thousands)

   2011      2010      2011      2010  

Realized gain on oil and natural gas derivatives

   $ 8,290       $ 6,329       $ 21,402       $ 15,658   

Unrealized gain on oil and natural gas derivatives

     18,163         16,165         5,995         41,907   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total gain on oil and natural gas derivatives

   $ 26,453       $ 22,494       $ 27,397       $ 57,565   
  

 

 

    

 

 

    

 

 

    

 

 

 

Commodity Derivative Activity

We enter into swap contracts, costless collars and other derivative agreements from time to time to manage the commodity price risk for a portion of our production. Our strategy, which is administered by the Hedging Committee of our Board of Directors, and reviewed periodically by the entire Board of Directors, has been to generally hedge between 30% and 70% of our estimated total production for the period the derivatives are in effect. As of September 30, 2011, the commodity derivatives we used were in the form of:

 

  (a) collars, where we receive the excess, if any, of the floor price over the reference price, based on NYMEX quoted prices, and pay the excess, if any, of the reference price over the ceiling price;

 

  (b) swaps, where we receive a fixed price and pay a floating price, based on NYMEX or specific transfer point quoted prices;

 

  (c) swaptions, where we grant the counter party the right but not the obligation to enter into an underlying swap by a specific date.

 

During the third quarter of 2011, we entered into the following new derivative contracts.

 

Contract Type

   Daily
Volume
     Strike Price      Contract Start Date    Contract Termination

Oil swap (BBL)

     500       $ 101.50       August 1, 2011    January 31, 2013

Oil swap (BBL)

     1,000       $ 101.00       January 1, 2012    December 31, 2012

Oil swaption (BBL)

     1,000       $ 101.00       January 1, 2013    December 31, 2013

Oil swaption (BBL)

     1,000       $ 101.00       January 1, 2014    December 31, 2014

Natural gas swap (MMBtu)

     20,000       $ 5.35       January 1, 2012    December 31, 2012

Natural gas swaption (MMBtu)

     20,000       $ 5.35       January 1, 2013    December 31, 2013

Natural gas swaption (MMBtu)

     20,000       $ 5.35       January 1, 2014    December 31, 2014

After September 30, 2011, we entered into the following new derivative contracts:

Contract Type

   Daily
Volume
     Strike Price      Contract Start Date    Contract Termination

Oil swap (BBL)

     500       $ 97.30       January 1, 2012    December 31, 2012

Oil swaption (BBL)

     500       $ 97.30       January 1, 2013    December 31, 2013

Oil swaption (BBL)

     500       $ 97.30       January 1, 2014    December 31, 2014

Despite the measures taken by us to attempt to control price risk, we remain subject to price fluctuations for natural gas and crude oil sold in the spot market. Prices received for natural gas sold on the spot market are volatile due primarily to seasonality of demand and other factors beyond our control.

As of September 30, 2011, our open forward positions on our outstanding commodity derivative contracts, all of which were with BNP Paribas, Bank of Montreal, Royal Bank of Canada and JPMorgan Chase Bank, N.A., were as follows:

 

Contract Type

   Daily
Volume
     Total
Volume
     Average
Floor/Cap
     Fair Value at
September 30, 2011
(in thousands)
 

Natural gas collars (MMBtu)

            $ 33,845   

4Q 2011

     40,000         3,680,000       $ 6.00 – $7.09      

2012

     40,000         14,640,000       $ 6.00 – $7.09      
                   Fixed Price         

Natural gas swaps (MMBtu)

              7,673   

2012

     20,000         7,320,000       $ 5.35      

Natural gas swaptions (MMBtu)

              (6,511

2013

     20,000         7,300,000       $ 5.35      

2014

     20,000         7,300,000       $ 5.35      

Oil swaps (BBL)

              14,250   

4Q 2011

     1,500         138,000       $ 100.00 – $112.00      

2012

     1,500         549,000       $ 101.00 – $101.50      

2013

     500         15,500       $ 101.50      

Oil swaptions (BBL)

              (7,430

2012

     1,000         365,200       $ 100.00 – $112.00      

2013

     2,000         730,800       $ 100.00 – $112.00      

2014

     1,000         365,000       $      
           

 

 

 
           Total       $ 41,827   
           

 

 

 

 

The fair value of our natural gas derivative contracts in place at September 30, 2011, resulted in a current asset of $44.8 million, a non-current asset of $6.8 million and a non-current liability of $9.8 million. We measure the fair value of our commodity derivatives contracts by applying the income approach, and these contracts are classified within Level 2 of the valuation hierarchy. See Note 8