CIVITAS RESOURCES, INC. - Quarter Report: 2014 March (Form 10-Q)

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

x     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2014

 

or

 

o        TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from            to          

 

Commission File Number: 001-35371

 

Bonanza Creek Energy, Inc.

(Exact name of registrant as specified in its charter)

 

 

 

(720) 440-6100

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x  Yes o  No

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). x  Yes o  No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o  Yes x  No

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. 40,389,592 shares of common stock were outstanding as of May 5, 2014.

 

 

 

 

PART I - FINANCIAL INFORMATION

Item 1.        Financial Statements.

 

BONANZA CREEK ENERGY, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

 

		March 31, 2014			December 31, 2013
		(in thousands, except share data)
ASSETS
Current assets:
Cash and cash equivalents		$	131,343		$	180,582
Accounts receivable:
Oil and gas sales		66,835			57,485
Joint interest and other		16,287			12,915
Prepaid expenses and other		4,274			1,638
Inventory of oilfield equipment		8,597			10,696
Derivative asset		145			858
Total current assets		227,481			264,174
Property and equipment (successful efforts method), at cost:
Proved properties		1,395,629			1,257,288
Less: accumulated depreciation, depletion and amortization		(264,466		)	(224,848		)
Total proved properties, net		1,131,163			1,032,440
Unproved properties		14,653			45,081
Wells in progress		155,642			110,848
Natural gas plant, net of accumulated depreciation of $6,541 in 2014 and $5,903 in 2013		70,176			71,474
Other property and equipment, net of accumulated depreciation of $3,500 in 2014 and $2,822 in 2013		7,566			7,406
Oil and gas properties held for sale, net of accumulated depreciation, depletion, and amortization of $ - in 2014 and $1,463 in 2013 (note 4)		—			360
Total property and equipment, net		1,379,200			1,267,609
Long-term derivative asset		—			293
Other noncurrent assets		13,463			13,859
Total assets		$	1,620,144		$	1,545,935
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued expenses (note 5)		$	168,161		$	121,665
Oil and gas revenue distribution payable		29,230			36,241
Contractual obligation for land acquisition		12,000			12,000
Derivative liability		11,071			5,320
Total current liabilities		220,462			175,226
Long-term liabilities:
Senior Notes, net of unamortized premium of $8,540 in 2014 and $8,847 in 2013		508,540			508,847
Contractual obligation for land acquisition		22,223			22,033
Ad valorem taxes		24,002			18,867
Derivative liability		997			1,203
Deferred income taxes, net		161,152			152,681
Asset retirement obligations		10,873			11,050
Total liabilities		948,249			889,907
Commitments and contingencies (Note 7)
Stockholders’ equity:
Preferred stock, $.001 par value, 25,000,000 shares authorized, none outstanding		—			—
Common stock, $.001 par value, 225,000,000 shares authorized,40,395,690 and 40,285,919 issued and outstanding in 2014 and 2013, respectively		40			40
Additional paid-in capital		530,088			527,752
Retained earnings		141,767			128,236
Total stockholders’ equity		671,895			656,028
Total liabilities and stockholders’ equity		$	1,620,144		$	1,545,935

 

The accompanying notes are an integral part of these consolidated financial statements.

 

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BONANZA CREEK ENERGY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

 

		Three Months Ended March 31,
		2014			2013
		(in thousands, except per share amounts)
Operating net revenues:
Oil and gas sales		$	127,395		$	78,307
Operating expenses:
Lease operating expenses		17,082			11,131
Severance and ad valorem taxes		10,749			4,812
Exploration		1,083			562
Depreciation, depletion and amortization		41,132			23,363
General and administrative (including $6,797 and $4,378 in 2014 and 2013, respectively, of stock compensation)		23,714			13,166
Total operating expenses		93,760			53,034
Income from operations		33,635			25,273
Other income (expense):
Derivative loss		(8,778		)	(5,116		)
Interest expense		(9,335		)	(1,963		)
Other income		51			137
Total other expense		(18,062		)	(6,942		)
Income from continuing operations before taxes		15,573			18,331
Income tax expense		(5,996		)	(7,058		)
Income from continuing operations		$	9,577		$	11,273
Discontinued operations (Note 4)
Loss from operations associated with oil and gas properties held for sale		(85		)	(27		)
Gain on sale of oil and gas properties		6,514			—
Income tax (expense) benefit		(2,475		)	10
Gain (loss) from discontinued operations		3,954			(17		)
Net income		$	13,531		$	11,256
Comprehensive income		$	13,531		$	11,256
Basic and diluted income per share:
Income from continuing operations		$	0.24		$	0.28
Income (loss) from discontinued operations		$	0.10		$	—
Net income per common share		$	0.34		$	0.28
Basic weighted-average common shares outstanding		39,605,083			39,253,743
Diluted weighted-average common shares outstanding		39,761,738			39,285,215

 

The accompanying notes are an integral part of these consolidated financial statements.

 

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BONANZA CREEK ENERGY, INC. AND SUBSIDIARIES

 CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

 

		Three Months Ended  March 31,
		2014			2013
		(in thousands)
Cash flows from operating activities:
Net income		$	13,531		$	11,256
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, depletion and amortization		41,199			23,467
Deferred income taxes		8,471			7,048
Stock-based compensation		6,797			4,378
Amortization of deferred financing costs		562			219
Amortization of premium on senior notes		(307		)	—
Accretion of contractual obligation for land acquisition		190			190
Derivative loss		8,778			5,116
Gain on sale of oil and gas properties		(6,514		)	—
Other		(2		)	73
Changes in current assets and liabilities:
Accounts receivable		(12,721		)	(6,912		)
Prepaid expenses and other assets		(2,637		)	81
Accounts payable and accrued liabilities		20,337			(5,068		)
Settlement of asset retirement obligations		—			(49		)
Net cash provided by operating activities		77,684			39,799
Cash flows from investing activities:
Acquisition of oil and gas properties		(1,202		)	(934		)
Proceeds from Sale of Oil and Gas Properties		6,000			—
Exploration and development of oil and gas properties		(123,835		)	(64,334		)
Natural gas plant capital expenditures		(194		)	(3,275		)
Derivative cash settlements		(2,227		)	(1,507		)
Additions to property and equipment - non oil and gas		(838		)	(1,386		)
Net cash used in investing activities		(122,296		)	(71,436		)
Cash flows from financing activities:
Proceeds from credit facility		—			33,500
Offering costs related to sale of senior subordinated notes		(140		)	—
Payment of employee tax withholdings in exchange for the return of common stock		(4,461		)	(2,908		)
Deferred financing costs		(26		)	(52		)
Net cash (used in) provided by financing activities		(4,627		)	30,540
Net change in cash and cash equivalents		(49,239		)	(1,097		)
Cash and cash equivalents:
Beginning of period		180,582			4,267
End of period		$	131,343		$	3,170
Supplemental cash flow disclosure:
Cash paid for interest		$	464		$	1,469
Changes in working capital related to drilling expenditures, natural gas plant expenditures, and property acquisition		$	23,238		$	(5,460	)

 

The accompanying notes are an integral part of these consolidated financial statements.

 

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BONANZA CREEK ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

NOTE 1 - ORGANIZATION AND BUSINESS

 

Bonanza Creek Energy, Inc. (the “Company” or “BCEI”) is engaged in the acquisition, exploration, development and production of onshore oil and associated liquids-rich natural gas in the United States. Our oil and liquids weighted assets are concentrated primarily in the Wattenberg Field in Colorado (Rocky Mountain region) and the Dorcheat Macedonia Field in southern Arkansas (Mid-Continent region).

 

NOTE 2 - BASIS OF PRESENTATION

 

These statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information. The quarterly financial statements included herein do not necessarily include all of the disclosures as may be required under generally accepted accounting principles for complete financial statements. There has been no material change in the information disclosed in the notes to the consolidated financial statements included in BCEI’s Annual Report on Form 10-K for the year ended December 31, 2013 (“2013 Form 10-K”), except as disclosed herein. These consolidated financial statements include all of the adjustments, which, in the opinion of management, are necessary for a fair presentation of the financial position and results of operations. All such adjustments are of a normal recurring nature only. The results of operations for the quarterly periods are not necessarily indicative of the results to be expected for the full fiscal year. The Company evaluated events subsequent to the balance sheet date of March 31, 2014, through the filing date of this report. Certain prior period amounts are reclassified to conform to the current period presentation, when necessary.

 

Principles of Consolidation

 

The consolidated balance sheets include the accounts of the Company and its wholly owned subsidiaries, Bonanza Creek Energy Operating Company, LLC, Bonanza Creek Energy Resources, LLC, Holmes Eastern Company, LLC, Bonanza Creek Energy Upstream LLC, and Bonanza Creek Energy Midstream, LLC. All significant intercompany accounts and transactions have been eliminated.

 

Significant Accounting Policies

 

The significant accounting policies followed by the Company were set forth in Note 1 to the 2013 Form 10-K and are supplemented by the notes throughout in this report. These unaudited condensed consolidated financial statements should be read in conjunction with the 2013 Form 10-K.

 

NOTE 3 - ACQUISITIONS

 

The Company did not complete any material acquisitions during the three months ended March 31, 2014.

 

On July 31, 2012, the Company acquired leases to approximately 5,600 net acres in the Wattenberg Field from the State of Colorado, State Board of Land Commissioners.  The Company paid approximately $12 million at closing, $12 million on July 31, 2013, and will pay approximately $12 million on July 31st of each of the next three years. These future payments were discounted based on our effective borrowing rate to arrive at the purchase price of $57 million.  These future payments are secured by a $36 million letter of credit as of March 31, 2014 and interest will be imputed on the future payments.  Following each payment the amount secured by the letter of credit will be amended each year on July 31st to reflect the reduction in obligation.

 

NOTE 4 - DISCONTINUED OPERATIONS

 

During June of 2012, the Company began marketing, with an intent to sell, all of its oil and gas properties in California classifying them as assets held for sale. Assets are classified as held for sale when the Company commits to a plan to sell the assets and there is reasonable certainty that the sale will take place within one year. The Company determined that its intent to sell all of its assets in a region qualified as discontinued operations. The Company sold its remaining property during the first quarter of 2014 for approximately $6.0 million and recorded a gain on the sale of oil and gas properties in the amount of $6.5 million. The carrying amounts of the remaining properties included within assets held for sale classified as discontinued operations are presented below.

 

5

 

		As of March 31, 2014			As of December 31, 2013
		(in thousands)
Assets held for sale:
Oil and gas properties, successful efforts method:
Proved properties		$	—		$	1,721
Unproved properties		—			1
Wells in progress		—			101
Total property and equipment		—			1,823
Less accumulated depreciation, depletion and amortization		—			(1,463		)
Net property and equipment		$	—		$	360

 

The total revenues, expenses, and income associated with the operation of the oil and gas properties held for sale are presented below.

 

		Three Months Ended March 31,
		2014			2013
		(in thousands)
Net revenues:
Oil and gas sales		$	361		$	438
Operating expenses:
Lease operating expense		366			304
Severance and ad valorem taxes		13
Exploration					57
Depreciation, depletion and amortization		67			104
Total operating expenses		446			465
Loss from operations associated with oil and gas properties held for sale		$	(85	)	$	(27	)

 

NOTE 5 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES

 

Accounts payable and accrued expenses contain the following:

 

		As of March  31, 2014			As of December  31, 2013
		(in thousands)
Drilling and completion costs		$	104,210		$	80,971
Accounts payable trade		17,207			3,288
Accrued general and administrative cost		11,648			12,720
Lease operating expense		4,574			5,440
Accrued reclamation cost		166			168
Accrued interest		15,491			7,065
Accrued oil and gas derivatives		955			446
Production and ad valorem taxes and other		13,910			11,567
		$	168,161		$	121,665

 

NOTE 6 — REVOLVING CREDIT FACILITY

 

The Company’s senior secured revolving Credit Agreement (the “Revolver” or “credit facility”), dated March 29, 2011, as amended, provides for borrowings of up to $600 million. As of March 31, 2014, and through the filing date of this report, the borrowing base under the Revolver was $450 million. The Company elected to limit bank commitments to $330 million while reserving the option to access, at the Company’s request, the full $450 million prior to the next semi-annual redetermination on May 15, 2014. The Revolver is collateralized by substantially all the Company’s assets and matures on September 15, 2018. As of March 31, 2014, and through the filing date of this report, the Company had no outstanding balance under the Revolver with an available borrowing capacity of $414 million after the reduction of the outstanding letter of credit of $36 million.

 

6

 

The Revolver restricts, among other items, the payment of dividends, certain additional indebtedness, sale of assets, loans and certain investments and mergers. The Revolver also contains certain financial covenants, which require the maintenance of minimum current and debt coverage ratios. The Company was in compliance with all financial and non-financial covenants as of March 31, 2014 and through the filing date of this report.

 

NOTE 7 - COMMITMENTS AND CONTINGENT LIABILITIES

 

From time to time, the Company is involved in various commercial and regulatory claims, litigation and other legal proceedings that arise in the ordinary course of its business. The Company assesses these claims in an effort to determine the degree of probability and range of possible loss for potential accrual in its consolidated financial statements. In accordance with accounting authoritative guidance, an accrual is recorded for a loss contingency when its occurrence is probable and damages can be reasonably estimated based on the anticipated most likely outcome or the minimum amount within a range of possible outcomes. Because legal proceedings are inherently unpredictable and unfavorable resolutions could occur, assessing contingencies is highly subjective and requires judgments about uncertain future events. When evaluating contingencies, the Company may be unable to provide a meaningful estimate due to a number of factors, including the procedural status of the matter in question, the presence of complex or novel legal theories, and/or the ongoing discovery and development of information important to the matters. The Company regularly reviews contingencies to determine the adequacy of its accruals and related disclosures. No claims have been made, nor is the Company aware of any material uninsured liability which the Company may have, as it relates to any environmental cleanup, restoration or the violation of any rules or regulations. As of the date of this filing, there were no material pending or overtly threatened legal actions against the Company of which it is aware.

 

Commitments

 

There have been no material changes from the commitments disclosed in the notes to the Company’s consolidated financial statements included in the 2013 Form 10-K.

 

NOTE 8 — STOCK-BASED COMPENSATION

 

Restricted Stock under the Long Term Incentive Plan

 

The Company grants shares of restricted stock, which represents one share of the Company’s common stock vesting in one-third increments over three years. Shares of restricted stock are valued at the closing price of the Company’s common stock on the grant date and are recognized as general and administrative expense over the vesting period of the award.

 

Total expense recorded for restricted stock for the three month periods ended March 31, 2014 and 2013, was $6.6 million and $4.4 million, respectively. As of March 31, 2014, unrecognized compensation cost was $21.7 million and will be amortized through 2017.

 

Performance Stock Units under the Long Term Incentive Plan

 

The Company grants performance stock units (“PSUs”) to certain officers of the Company. The number of shares of the Company’s common stock that may be issued to settle PSUs range from zero to two times the number of PSUs awarded and is determined based on the Company’s performance over a three-year measurement period. The PSUs granted during 2013 vest in their entirety at the end of the measurement period. The PSUs granted during 2014 vest at the end of each annual measurement period during the performance cycle up to two-thirds of the target number of PSUs that are eligible for vesting (such that an amount equal to 200% of the target number may be earned during the performance cycle of three years).  The PSUs will be settled in shares following the end of the three year performance cycle.

 

Total expense recorded for PSUs for the three month period ended March 31, 2014 was $0.2 million. As of March 31, 2014, there was $3.4 million of total unrecognized compensation expense related to unvested PSUs to be amortized through 2015. There have been no material changes to the outstanding and non-vested PSUs during the quarter ended March 31, 2014.

 

NOTE 9 - FAIR VALUE MEASUREMENTS

 

The Company follows fair value measurement authoritative guidance for all assets and liabilities measured at fair value, which defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A hierarchy for inputs is used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. The hierarchy is broken down into three levels based on the reliability of the inputs as follows:

 

Level 1:              Quoted prices are available in active markets for identical assets or liabilities

 

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Level 2:              Quoted prices in active markets for similar assets and liabilities, quoted prices for identical or similar instruments in markets that are not active, and model-derived valuations whose inputs are observable or whose significant value drivers are observable

 

Level 3:              Significant inputs to the valuation model are unobservable

 

Financial assets and liabilities are to be classified based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of the fair value of assets and liabilities and their placement within the fair value hierarchy levels.

 

The following tables present the Company’s financial assets and liabilities that were accounted for at fair value on a recurring basis as of March 31, 2014 and December 31, 2013 and their classification within the fair value hierarchy:

 

		As of March 31, 2014
		Level 1			Level 2			Level 3
		(in thousands)
Derivative assets		$	—		$	—		$	145
Derivative liabilities		$	—		$	3,906		$	8,162

 

		As of December 31, 2013
		Level 1			Level 2			Level 3
		(in thousands)
Derivative assets		$	—		$	736		$	415
Derivative liabilities		$	—		$	1,741		$	4,782

 

Derivatives

 

Fair value of all derivative instruments are estimated with industry-standard models that consider various assumptions, including quoted forward prices for commodities, time value of money, volatility factors and current market and contractual prices for the underlying instruments, as well as other relevant economic measures. All valuations were compared against counterparty statements to verify the reasonableness of the estimate. The Company’s commodity swaps are validated by observable transactions for the same or similar commodity options using the NYMEX futures index, and are designated as Level 2 within the valuation hierarchy. The Company’s collars, which are designated as Level 3 within the valuation hierarchy, are not validated by observable transactions with respect to volatility. Presently, all of our derivative arrangements are concentrated with five counterparties all of which are lenders under the Company’s Revolver.

 

The following table reflects the activity for the commodity derivatives measured at fair value using Level 3 inputs during the quarter ended March 31, 2014:

 

 

		Derivative Asset			Derivative Liability
		(in thousands)
Beginning balance		$	415		$	4,782
Net (decrease) increase in fair value(1)		478			3,774
Net settlement(1)		(879		)	(882		)
New derivatives		131			488
Transfers in (out) of Level 3		—			—
Ending balance		$	145		$	8,162

 

(1)         Net (decrease) increase in fair value and net settlements are a component of the derivative gain (loss) line item in the accompanying statements of operations.

 

Proved Oil and Gas Properties

 

Proved oil and gas property costs are evaluated for impairment and reduced to fair value when there is an indication that the carrying costs exceed the sum of the undiscounted cash flows. The Company uses Level 3 inputs and the income valuation technique, which converts future amounts to a single present value amount, to measure the fair value of proved properties through an application of discount rates and price forecasts selected by the Company’s management. The calculation of the discount rate is a significant management estimate based on the best information available and estimated to be 10%. Management believes that the discount rate is representative of current market conditions and reflects the following factors: estimate of future cash payments, expectations of possible variations in the amount and/or timing of cash flows, the risk premium, and nonperformance risk. The price forecast is based

 

8

 

on the NYMEX strip pricing, adjusted for basis differentials. Future operating costs are also adjusted as deemed appropriate for these estimates. Proved properties classified as held for sale are valued using a market approach, based on an estimated selling price, as evidenced by the most current bid prices received from third parties. If an estimated selling price is not available, the Company utilizes the income valuation technique discussed above. There were no proved properties measured at fair value at March 31, 2014 or December 31, 2013.

 

Unproved Oil and Gas Properties

 

Unproved oil and gas property costs are evaluated for impairment and reduced to fair value when there is an indication that the carrying costs may not be recoverable. To measure the fair value of unproved properties, the Company uses Level 3 inputs and the income valuation technique, which takes into account the following significant assumptions: future development plans, risk weighted potential resource recovery, and estimated reserve values. Unproved properties classified as held for sale are valued using a market approach, based on an estimated selling price, as evidenced by the most current bid prices received from third parties. If an estimated selling price is not available, the Company uses the price received for similar acreage in recent transactions by the Company or other market participants in the principal market. There were no unproved properties measured at fair value as of March 31, 2014 or December 31, 2013.

 

Asset Retirement Obligation

 

The Company utilizes the income valuation technique to determine the fair value of the asset retirement obligation liability at the point of inception by applying a credit-adjusted risk-free rate, which takes into account the Company’s credit risk, the time value of money, and the current economic state, to the undiscounted expected abandonment cash flows. Upon completion of wells and natural gas plants, the Company records an asset retirement obligation at fair value using Level 3 assumptions. Given the unobservable nature of the inputs, the initial measurement of the asset retirement obligation liability is deemed to use Level 3 inputs.  There were no asset retirement obligations measured at fair value at March 31, 2014 or December 31, 2013.

 

Long-term Debt

 

As of March 31, 2014, the Company had $500 million of outstanding 6.75% Senior Notes (the “Senior Notes”).  The Senior Notes are recorded at cost net of the unamortized premium on the accompanying balance sheets at $508.5 million and $508.8 million as of March 31, 2014 and December 31, 2013, respectively. The fair value of the Senior Notes as of March 31, 2014 and December 31, 2013 was $526.0 million and $527.5 million, respectively, measured using Level 1 inputs based on a secondary market trading price. The carrying value of the Company’s credit facility approximates fair value, as the applicable interest rates are floating.

 

NOTE 10 — DERIVATIVES

 

The Company enters into commodity derivative contracts to mitigate a portion of its exposure to potentially adverse market changes in commodity prices and the associated impact on cash flows. All contracts are entered into for other-than-trading purposes. The Company’s derivatives include swaps and collar arrangements for oil and gas and none of the derivative instruments qualify as having hedging relationships.

 

As of March 31, 2014, the Company had the following derivative commodity contracts in place:

 

Settlement Period		Derivative Instrument		Total Volumes (Bbls/MMBtu per day)		Average Fixed Price			Average Short Floor Price			Average Floor Price			Average Ceiling Price			Fair Market Value of Asset (Liability)
																		(in thousands)
Oil
2Q 2014		Swap		4,126		$	96.20											(1,599		)
3Q 2014		Swap		3,870		$	93.04											(1,623		)
4Q 2014		Swap		3,870		$	93.04											(683		)
2Q 2014		Collar		4,846								$	86.55		$	96.72		(2,039		)
3Q 2014		Collar		4,326								$	86.16		$	96.57		(1,464		)
4Q 2014		Collar		4,326								$	86.16		$	96.57		(824		)
2Q 2014		3-Way Collar		2,000					$	65.00		$	87.68		$	99.75		(442		)
3Q 2014		3-Way Collar		2,000					$	65.00		$	87.68		$	99.75		(339		)
4Q 2014		3-Way Collar		2,000					$	65.00		$	87.68		$	99.75		(96		)
1Q 2015		3-Way Collar		5,500					$	67.27		$	83.75		$	95.19		(1,137		)
2Q 2015		3-Way Collar		4,500					$	66.67		$	83.33		$	94.12		(688		)
3Q 2015		3-Way Collar		4,500					$	66.67		$	83.33		$	94.12		(342		)
4Q 2015		3-Way Collar		4,500					$	66.67		$	83.33		$	94.12		(84		)
																		$	(11,360	)
Gas
2Q 2014		3-Way Collar		30,000					$	3.63		$	4.21		$	4.81		$	85
3Q 2014		3-Way Collar		30,000					$	3.63		$	4.21		$	4.81		$	(46	)
4Q 2014		3-Way Collar		30,000					$	3.63		$	4.21		$	4.81		$	(302	)
1Q 2015		3-Way Collar		15,000					$	3.50		$	4.00		$	4.75		$	(417	)
2Q 2015		3-Way Collar		15,000					$	3.50		$	4.00		$	4.75		$	80
3Q 2015		3-Way Collar		15,000					$	3.50		$	4.00		$	4.75		$	52
4Q 2015		3-Way Collar		15,000					$	3.50		$	4.00		$	4.75		$	(15	)
																		$	(563	)
Total																		$	(11,923	)

 

9

 

As of the date of filing we had the following economic derivatives in place, which settle monthly:

 

Settlement Period		Derivative Instrument		Total Volumes (Bbls/MMBtu per day)		Average Fixed Price			Average Short Floor Price			Average Floor Price			Average Ceiling Price
Oil
2Q 2014		Swap		4,126		$	96.20
3Q 2014		Swap		3,870		$	93.04
4Q 2014		Swap		4,370		$	93.47
1Q 2015		Swap		2,000		$	92.22
2Q 2015		Swap		1,000		$	90.40
3Q 2015		Swap		1,000		$	90.40
4Q 2015		Swap		1,000		$	90.40
2Q 2014		Collar		4,846								$	86.55		$	96.72
3Q 2014		Collar		4,326								$	86.16		$	96.57
4Q 2014		Collar		4,326								$	86.16		$	96.57
2Q 2014		3-Way Collar		2,000					$	65.00		$	87.68		$	99.75
3Q 2014		3-Way Collar		2,000					$	65.00		$	87.68		$	99.75
4Q 2014		3-Way Collar		2,000					$	65.00		$	87.68		$	99.75
1Q 2015		3-Way Collar		5,500					$	67.27		$	83.75		$	95.19
2Q 2015		3-Way Collar		4,500					$	66.67		$	83.33		$	94.12
3Q 2015		3-Way Collar		4,500					$	66.67		$	83.33		$	94.12
4Q 2015		3-Way Collar		4,500					$	66.67		$	83.33		$	94.12
Gas
2Q 2014		3-Way Collar		30,000					$	3.63		$	4.21		$	4.81
3Q 2014		3-Way Collar		30,000					$	3.63		$	4.21		$	4.81
4Q 2014		3-Way Collar		30,000					$	3.63		$	4.21		$	4.81
1Q 2015		3-Way Collar		15,000					$	3.50		$	4.00		$	4.75
2Q 2015		3-Way Collar		15,000					$	3.50		$	4.00		$	4.75
3Q 2015		3-Way Collar		15,000					$	3.50		$	4.00		$	4.75
4Q 2015		3-Way Collar		15,000					$	3.50		$	4.00		$	4.75

 

Derivative Assets and Liabilities Fair Value

 

The Company’s commodity derivatives are measured at fair value and are included in the accompanying balance sheets as derivative assets and liabilities.

 

The following table contains a summary of all the Company’s derivative positions reported on the accompanying balance sheets as of March 31, 2014 and December 31, 2013:

 

10

 

		As of March 31, 2014
		Balance Sheet Location		Fair Value
				(in thousands)
Derivative Assets:
Commodity contracts		Current assets		$	145
Commodity contracts		Noncurrent assets		—
Derivative Liabilities:
Commodity contracts		Current liabilities		(11,071		)
Commodity contracts		Long-term liabilities		(997		)
Total net derivative liability				$	(11,923	)

 

		As of December 31, 2013
		Balance Sheet Location		Fair Value
				(in thousands)
Derivative Assets:
Commodity contracts		Current assets		$	858
Commodity contracts		Noncurrent assets		293
Derivative Liabilities:
Commodity contracts		Current liabilities		(5,320		)
Commodity contracts		Long-term liabilities		(1,203		)
Total net derivative liability				$	(5,372	)

 

The following table summarizes the components of the derivative gain (loss) presented on the accompanying statements of operations:

 

		For the Three Months Ended March 31,
		2014			2013
		(in thousands)
Derivative cash settlement gain (loss):
Oil contracts		$	(1,699	)	$	(1,651	)
Gas contracts		(528		)	144
Total derivative cash settlement (loss)(1)		$	(2,227	)	$	(1,507	)
Change in fair value gain (loss)		$	(6,551	)	$	(3,609	)
Total derivative gain (loss)(2)		$	(8,778	)	$	(5,116	)

 

(1)         Derivative cash settlement gain (loss) is reported in the derivative cash settlements line item on the accompanying statements of cash flows within the net cash used in investing activities.

(2)         Total derivative gain (loss) is reported in the derivative gain (loss) line item on the accompanying statements of cash flows within the net cash provided by operating activities.

 

NOTE 11 — EARNINGS PER SHARE

 

The Company issues shares of restricted stock entitling the holders to receive non-forfeitable dividends, if and when, the Company were to declare a dividend, before vesting, thus making the awards participating securities. The awards are included in the calculation of earnings per share under the two-class method. The two-class method allocates earnings for the period between common shareholders and unvested participating shareholders.

 

The following table sets forth the calculation of earnings per basic and diluted shares from continuing and discontinued operations for the three-month periods ended March 31, 2014 and 2013:

 

11