Derivative Financial Instruments

9 Months Ended

Sep. 30, 2015

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Financial Instruments

Derivative Financial Instruments

The Company utilizes commodity swap contracts, collar contracts and collar contracts with short puts to (i) reduce the effect of price volatility on the commodities the Company produces and sells or consumes, (ii) support the Company's annual capital budgeting and expenditure plans and (iii) reduce commodity price risk associated with certain capital projects. The Company also, from time to time, utilizes interest rate contracts to reduce the effect of interest rate volatility on the Company's indebtedness.

Oil production derivative activities. All material physical sales contracts governing the Company's oil production are tied directly to, or are highly correlated with, New York Mercantile Exchange ("NYMEX") West Texas Intermediate ("WTI") oil prices. The Company uses derivative contracts to manage oil price volatility and basis swap contracts to reduce basis risk between NYMEX prices and the actual index prices at which the oil is sold.

The following table sets forth the volumes per day associated with the Company's outstanding oil derivative contracts as of September 30, 2015 and the weighted average oil prices for those contracts:

	Three Months Ending December 31,		Year Ending December 31,
	2015		2016		2017
Swap contracts:
Volume (Bbl)	82,000		4,475		—
Price per Bbl	$	71.18	$	59.00	$	—
Collar contracts with short puts (a):
Volume (Bbl)	15,000		101,806		34,000
Price per Bbl:
Ceiling	$	97.69	$	75.93	$	70.42
Floor	$	82.97	$	65.30	$	57.65
Short put	$	69.67	$	46.08	$	47.65
Rollfactor swap contracts (b):
Volume (Bbl)	37,000		—		—
NYMEX roll price	$	0.06	$	—	$	—

 ____________________

(a) Counterparties have the option to extend for an additional year 5,000 Bbls per day of 2015 collar contracts with short puts with a ceiling price of $100.08 per Bbl, a floor price of $90.00 per Bbl and a short put price of $80.00 per Bbl. The option to extend is exercisable on December 31, 2015. These contracts give the counterparties the option to extend the contracts under the same terms for an additional year if the option to extend is exercised by the counterparties on December 31, 2015.

(b) Represents swaps that fix the difference between (i) each day's price per Bbl of WTI for the first nearby month less (ii) the price per Bbl of WTI for the second nearby NYMEX month, multiplied by .6667; plus (iii) each day's price per Bbl of WTI for the first nearby month less (iv) the price per Bbl of WTI for the third nearby NYMEX month, multiplied by .3333.

NGL production derivative activities. All material physical sales contracts governing the Company's NGL production are tied directly or indirectly to either Mont Belvieu or Conway NGL component product prices.

The following table sets forth the volumes per day associated with the Company's outstanding NGL derivative contracts as of September 30, 2015 and the weighted average NGL prices for those contracts:

	Three Months Ending December 31,		Year Ending December 31,
	2015		2016
Ethane swap contracts:
Volume (Bbl)	6,000		5,000
Price per Bbl	$	7.80	$	11.61
Propane swap contracts:
Volume (Bbl)	11,000		7,500
Price per Bbl	$	21.62	$	21.57

Gas production derivative activities. All material physical sales contracts governing the Company's gas production are tied directly or indirectly to NYMEX Henry Hub ("HH") gas prices or regional index prices where the gas is sold. The Company uses derivative contracts to manage gas price volatility and basis swap contracts to reduce basis risk between HH prices and the actual index prices at which the gas is sold.

The following table sets forth the volumes per day associated with the Company's outstanding gas derivative contracts as of September 30, 2015 and the weighted average gas prices for those contracts:

	Three Months Ending December 31,			Year Ending December 31,
	2015			2016			2017
Swap contracts:
Volume (MMBtu)	20,000			70,000			—
Price per MMBtu	$	4.31		$	4.06		$	—
Collar contracts with short puts:
Volume (MMBtu)	285,000			180,000			—
Price per MMBtu:
Ceiling	$	5.07		$	4.01		$	—
Floor	$	4.00		$	3.24		$	—
Short put	$	3.00		$	2.78		$	—
Basis swap contracts:
Gulf Coast index swap volume (a)	20,000			10,000			—
Price differential ($/MMBtu)	$	—		$	—		$	—
Mid-Continent index swap volume (a)	95,000			15,000			45,000
Price differential ($/MMBtu)	$	(0.24	)	$	(0.32	)	$	(0.32	)
Permian Basin index swap volume (a)	10,000			—			—
Price differential ($/MMBtu)	$	(0.13	)	$	—		$	—
Permian Basin index swap volume (b)	30,000			—			—
Price differential ($/MMBtu)	$	0.19		$	—		$	—

____________________

(a) Represent swaps that fix the basis differentials between the index prices at which the Company sells its Gulf Coast, Mid-Continent and Permian Basin gas, respectively, and the HH index price used in gas swap and collar contracts.

(b) Represent swaps that fix the basis differentials between Permian Basin index prices and southern California index prices for Permian Basin gas forecasted for sale in southern California.

Marketing and basis differential derivative activities. Periodically, the Company enters into buy and sell marketing arrangements to fulfill firm pipeline transportation commitments. Associated with these marketing arrangements, the Company may enter into index swaps to mitigate price risk. As of September 30, 2015, the Company had marketing oil index swap contracts for 10,000 Bbl per day for the remainder of 2015 with a price differential of $2.99 per Bbl between WTI and Louisiana Light Sweet oil.

Interest rate derivative activities. As of September 30, 2015, the Company was party to interest rate derivative contracts whereby the Company will receive (i) the 10-year Treasury rate in exchange for paying average fixed rates of 2.15 percent on a notional amount of $100 million on December 15, 2015 and 2.24 percent on a notional amount of $100 million on March 15, 2016 and (ii) the three-month LIBOR rate for the 10-year period from March 2016 through March 2026 in exchange for paying a fixed interest rate of 2.18 percent on a notional amount of $50 million on March 15, 2016. Subsequent to September 30, 2015, the Company entered into additional interest rate derivative contracts whereby the Company will receive the three-month LIBOR rate for the 10-year period from March 2016 through March 2026 in exchange for paying a fixed interest rate of 2.12 percent on a notional amount of $50 million on March 15, 2016.

Tabular disclosure of derivative financial instruments. All of the Company's derivatives are accounted for as non-hedge derivatives and therefore all changes in the fair values of its derivative contracts are recognized as gains or losses in the earnings of the periods in which they occur. The Company classifies the fair value amounts of derivative assets and liabilities as net current or noncurrent derivative assets or net current or noncurrent derivative liabilities, whichever the case may be, by commodity and counterparty. The Company enters into derivatives under master netting arrangements, which, in an event of default, allows the Company to offset payables to and receivables from the defaulting counterparty.

The aggregate fair value of the Company's derivative instruments reported in the accompanying consolidated balance sheets by type and counterparty, including the classification between current and noncurrent assets and liabilities, consists of the following:

Fair Value of Derivative Instruments as of September 30, 2015
Type	Consolidated Balance Sheet Location	Fair Value		Gross Amounts Offset in the Consolidated Balance Sheet			Net Fair Value Presented in the Consolidated Balance Sheet
		(in millions)
Derivatives not designated as hedging instruments
Asset Derivatives:
Commodity price derivatives	Derivatives - current	$	634	$	(2	)	$	632
Commodity price derivatives	Derivatives - noncurrent	$	148	$	(1	)	147
							$	779
Liability Derivatives:
Commodity price derivatives	Derivatives - current	$	2	$	(2	)	$	—
Interest rate derivatives	Derivatives - current	$	2	$	—		2
Commodity price derivatives	Derivatives - noncurrent	$	2	$	(1	)	1
							$	3

Fair Value of Derivative Instruments as of December 31, 2014
Type	Consolidated Balance Sheet Location	Fair Value		Gross Amounts Offset in the Consolidated Balance Sheet			Net Fair Value Presented in the Consolidated Balance Sheet
		(in millions)
Derivatives not designated as hedging instruments
Asset Derivatives:
Commodity price derivatives	Derivatives - current	$	579	$	(1	)	$	578
Commodity price derivatives	Derivatives - noncurrent	$	182	$	(1	)	181
							$	759
Liability Derivatives:
Commodity price derivatives	Derivatives - current	$	1	$	(1	)	$	—
Interest rate derivatives	Derivatives - current	$	3	$	—		3
Commodity price derivatives	Derivatives - noncurrent	$	3	$	(1	)	2
							$	5

The Company uses credit and other financial criteria to evaluate the credit standing of, and to select, counterparties to its derivative instruments. Although the Company does not obtain collateral or otherwise secure the fair value of its derivative instruments, associated credit risk is mitigated by the Company's credit risk policies and procedures.

The following table details the location of gains and losses recognized on the Company's derivative contracts in the accompanying consolidated statements of operations:

Derivatives Not Designated as Hedging	Location of Gain / (Loss) Recognized in	Three Months Ended September 30,					Nine Months Ended September 30,
Instruments	Earnings on Derivatives	2015			2014		2015		2014
		(in millions)
Commodity price derivatives	Derivative gains, net	$	575		$	341	$	614	$	1
Interest rate derivatives	Derivative gains, net	(2		)	—		3		18
Total		$	573		$	341	$	617	$	19