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__________
(1)
Includes $1.2 million of net revenues related to wells operated
by Brigham Exploration and $0.6 million of net revenues related
to wells operated by the Company, resulting in a net receivable
balance.
It is management’s opinion that the transactions
with these entities were executed at prevailing market rates. At
December 31, 2006 and 2005, the Company had an outstanding related-party
net receivable balance of $0.2 million and a payable balance of
$0.1 million, respectively.
See Notes 3 and 7 for a discussion of the
investment in Pinnacle and Series B Preferred Stock with parties
that include members of the Company’s Board of Directors or their
affiliates.
Steven A. Webster, Chairman of the Board
of the Company, is also Chairman of Avista Capital Holdings, L.P.
and is therefore a related party to the Pinnacle transaction.
In January 2006, the Company acquired certain
oil and gas leases for approximately $1.1 million from Black Stone
Acquisitions Partners I L.P., the general partner of which is Black
Stone Minerals Company L.P. (“Black Stone Minerals”). Thomas L.
Carter, Jr., a member of the Company’s board of directors, is the
Chief Executive Officer and an owner of a significant interest in
Black Stone Minerals. Black Stone Acquisition Partners also retains
a royalty interest in the acquired leases, which are located in
Mississippi. The terms and conditions of the lease agreement with
Black Stone Acquisitions Partners I L.P. are generally consistent
with the lease agreements that the Company has entered into with
other third parties. Additionally, the Company operates three producing
wells in which affiliates of Black Stone Minerals hold a royalty
interest, acquired from an unrelated third party.
11. DERIVATIVE
FINANCIAL INSTRUMENTS
The Company enters into swaps, options,
collars and other derivative contracts to manage price risks associated
with a portion of anticipated future oil and natural gas production.
While the use of derivative financial instruments limits the downside
risk of adverse price movements, it may also limit future gains
from favorable movements. Under these agreements, payments are received
or made based on the differential between a fixed and a variable
product price. These agreements are settled in cash at termination,
expiration or exchanged for physical delivery contracts. The Company
enters into the majority of its derivative transactions with two
counterparties and netting agreements are in place with those counterparties.
The Company does not obtain collateral to support the agreements
but monitors the financial viability of counterparties and believes
its credit risk is minimal on these transactions. In the event of
nonperformance, the Company would be exposed to price risk. The
Company has some risk of accounting loss since the price received
for the product at the actual physical delivery point may differ
from the prevailing price at the delivery point required for settlement
of the financial instruments.
The Company accounts for its oil and natural
gas derivatives and interest rate swap agreements as non-designated
hedges. These derivatives are marked-to-market at each balance sheet
date and the unrealized gains (losses) are reported in the net gain
(loss) on derivatives in Other Income and Expenses in the Consolidated
Statement of Operations. In addition, the company records the realized
gains (losses) associated with the cash settlements of these derivative
instruments in the net gain (loss) on derivatives in Other Income
and Expense in the Consolidated Statement of Operations. For the
years ended December 31, 2006, 2005 and 2004, the Company recorded
the following related to its derivatives:
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