COMSTOCK RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) that its significant filing positions are highly certain and that all of its other significant income tax filing positions and deductions would be sustained upon audit or the final resolution would not have a material effect on the consolidated financial statements. Therefore, the Company has not established any significant reserves for uncertain tax positions. Interest and penalties resulting from audits by tax authorities have been immaterial and are included in the provision for income taxes in the consolidated statements of operations. (10) Derivative Financial Instruments and Hedging Activities Comstock periodically uses swaps, floors and collars to hedge oil and natural gas prices and interest rates. Swaps are settled monthly based on differences between the prices specified in the instruments and the settlement prices of futures contracts. Generally, when the applicable settlement price is less than the price specified in the contract, Comstock receives a settlement from the counterparty based on the difference multiplied by the volume or amounts hedged. Similarly, when the applicable settlement price exceeds the price specified in the contract, Comstock pays the counterparty based on the difference. Comstock generally receives a settlement from the counterparty for floors when the applicable settlement price is less than the price specified in the contract, which is based on the difference multiplied by the volumes hedged. For collars, generally Comstock receives a settlement from the counterparty when the settlement price is below the floor and pays a settlement to the counterparty when the settlement price exceeds the cap. No settlement occurs when the settlement price falls between the floor and cap. All of the Company’s derivative financial instruments are used for risk management purposes and by policy none are held for trading or speculative purposes. Comstock minimizes credit risk to counterparties of its derivative financial instruments through formal credit policies, monitoring procedures, and diversification. All of Comstock’s derivative financial instruments are with parties that are lenders under its bank credit facility. The Company is not required to provide any credit support to its counterparties other than cross collateralization with the assets securing its bank credit facility. None of the Company’s derivative financial instruments involve payment or receipt of premiums. During 2013, the Company hedged 2,160,000 barrels of its oil production at an average NYMEX West Texas Intermediate oil price of $98.67 per barrel. As of December 31, 2013, the Company had the following outstanding commodity derivatives: Commodity and Derivative Type Weighted- Average Contract Price Volume (Barrels) Contract Period Oil Price Swap Agreements ......... $96.31 per Bbl. 1,985,000 Jan. 2014 – Dec. 2014 None of the derivative contracts have been designated as cash flow hedges. The Company recognizes cash settlements and changes in the fair value of its derivative financial instruments as a single component of other income (expenses). Gains (losses) on derivative financial instruments were a gain of $21.3 million for the year ended December 31, 2012 and a loss of $8.4 million for the year ended December 31, 2013. Cash settlements on derivative financial instruments were $9.8 million and $2.3 million for the years ended December 31, 2012 and 2013, respectively. The estimated fair value of the Company’s derivative financial instruments, which equals their carrying value, was an asset of $11.7 million and $1.0 million as of December 31, 2012 and 2013, respectively, which are reflected as current assets based on estimated settlement dates. F-27