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Derivative Financial Instruments
 9 Months Ended
Sep. 30, 2016
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.
Periodically, the Company may pay a premium to enter into commodity contracts. Premiums paid, if any, have been nominal in relation to the value of the underlying asset in the contract. The Company recognizes the nominal premium payments as an increase to the value of derivative assets when paid. All derivatives are adjusted to fair value as of each balance sheet date.
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, 2016 and the weighted average oil prices for those contracts: 
 
2016
 
 
Year Ending December 31,
 
Fourth Quarter
 
 
2017
Collar contracts:
 
 
 
 
Volume (Bbl)
—

 
 
6,000

Price per Bbl:
 
 
 
 
Ceiling
$
—

 
 
$
70.40

Floor
$
—

 
 
$
50.00

Collar contracts with short puts:
 
 
 
 
Volume (Bbl) (a)
112,000

 
 
94,973

Price per Bbl:
 
 
 
 
Ceiling
$
75.94

 
 
$
62.36

Floor
$
65.41

 
 
$
49.07

Short put
$
47.03

 
 
$
41.30

Basis swap contracts:
 
 
 
 
Midland-Cushing index swap volume (Bbl)
6,630

 
 
—

Price differential ($/Bbl) (b)
$
(0.80
)
 
 
$
—

____________________
(a)
During the nine months ended September 30, 2016, the Company paid $24 million to convert 33,000 Bbls per day of 2017 collar contracts with short puts into new 2017 collar contracts with short puts with a ceiling price of $60.76 per Bbl, a floor price of $45.00 per Bbl and a short put price of $40.00 per Bbl. During the period from October 1, 2016 through October 28, 2016, the Company entered into additional oil collar contracts with short puts for (i) 20,000 Bbls per day of January through June 2017 production with a ceiling price of $58.99 per Bbl, a floor price of $48.50 per Bbl and a short put price of $39.00 per Bbl, (ii) 32,000 Bbls per day of July through December 2017 production with a ceiling price of $60.77 per Bbl, a floor price of $50.00 per Bbl and a short put price of $40.00 per Bbl and (iii) 20,000 Bbls per day of 2018 production with a ceiling price of $65.14 per Bbl, a floor price of $50.00 per Bbl and a short put price of $40.00 per Bbl.
(b)
Represents the basis differential between Midland, Texas oil prices and WTI prices at Cushing, Oklahoma.
NGL production derivative activities. All material physical sales contracts governing the Company's NGL production are tied directly or indirectly to either Mont Belvieu, Texas or Conway, Kansas NGL component product prices. The Company uses derivative contracts to manage the NGL component price volatility.
The following table sets forth the volumes per day associated with the Company's outstanding NGL derivative contracts as of September 30, 2016 and the weighted average NGL prices for those contracts: 
 
2016
 
Year Ending December 31,
 
Fourth Quarter
 
2017
Propane swap contracts (a):
 
 
 
Volume (Bbl)
6,000

 
—

Price per Bbl
$
21.51

 
$
—

Ethane collar contracts (b):
 
 
 
Volume (Bbl)
—

 
3,000

Price per Bbl:
 
 
 
Ceiling
$
—

 
$
11.83

Floor
$
—

 
$
8.68

Ethane basis swap contracts (c):
 
 
 
Volume (MMBtu)
2,768

 
—

Price differential ($/MMBtu)
$
0.91

 
$
—


 ____________________
(a)
Represent derivative contracts that reduce the price volatility of propane forecasted for sale by the Company at Mont Belvieu, Texas and Conway, Kansas posted prices.
(b)
Represent collar contracts that reduce the price volatility of ethane forecasted for sale by the Company at Mont Belvieu, Texas-posted prices.
(c)
Represent basis swap contracts that reduce the price volatility of ethane forecasted for sale by the Company at Mont Belvieu, Texas-posted prices. The basis swaps fix the basis differential on a NYMEX Henry Hub ("HH") MMBtu equivalent basis. The Company will receive the HH price plus the price differential on 2,768 MMBtu per day, which is equivalent to 1,000 Bbls per day of ethane.
Gas production derivative activities. All material physical sales contracts governing the Company's gas production are tied directly or indirectly to 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, 2016 and the weighted average gas prices for those contracts: 
 
2016
 
Year Ending December 31,
 
Fourth Quarter
 
2017
 
2018
Swap contracts:
 
 
 
 
 
Volume (MMBtu)
70,000

 
—

 
—

Price per MMBtu
$
4.06

 
$
—

 
$
—

Collar contracts with short puts:
 
 
 
 
 
Volume (MMBtu) (a)
180,000

 
130,000

 
50,000

Price per MMBtu:
 
 
 
 
 
Ceiling
$
4.01

 
$
3.39

 
$
3.40

Floor
$
3.24

 
$
2.85

 
$
2.75

Short put
$
2.78

 
$
2.41

 
$
2.25

Basis swap contracts:
 
 
 
 
 
Gulf Coast index swap volume (b)
10,000

 
—

 
—

Price differential ($/MMBtu)
$
—

 
$
—

 
$
—

Mid-Continent index swap volume (b)
15,000

 
45,000

 
—

Price differential ($/MMBtu)
$
(0.32
)
 
$
(0.32
)
 
$
—

Permian Basin index swap volume (c)
34,946

 
9,863

 
—

Price differential ($/MMBtu)
$
0.41

 
$
0.37

 
$
—

____________________
(a)
During the period from October 1, 2016 through October 28, 2016, the Company entered into additional gas collar contracts with short puts for 50,000 MMBtu per day of 2017 production with a ceiling price of $3.76 per MMBtu, a floor price of $3.06 per MMBtu and a short put price of $2.50 per MMBtu.
(b)
Represent swaps that fix the basis differentials between the index prices at which the Company sells its Gulf Coast and Mid-Continent gas, respectively, and the HH index price used in gas swap and collar contracts with short puts.
(c)
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 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, 2016, the Company did not have any marketing derivatives outstanding.
Diesel derivative activities. Periodically, the Company enters into diesel derivative swap contracts to mitigate fuel price risk. The diesel derivative swap contracts are priced at an index that is highly correlated to the prices that the Company incurs to fuel its drilling rigs and fracture stimulation fleet equipment. As of September 30, 2016, the Company was party to derivative swap contracts for 1,000 Bbls per day of diesel for 2017 at an average per Bbl fixed price of $60.48.
Interest rate derivative activities. As of September 30, 2016, the Company was a party to interest rate derivative contracts whereby the Company will receive the three-month LIBOR rate for the 10-year period from December 2017 to December 2027 in exchange for paying a weighted average fixed interest rate of 1.94 percent on a notional amount of $250 million on December 15, 2017.
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, 2016
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
 
$
190

 
$
(18
)
 
$
172

Commodity price derivatives
 
Derivatives - noncurrent
 
$
11

 
$
(3
)
 
8

 
 
 
 
 
 
 
 
$
180

Liability Derivatives:
 

 
 
 
 
Commodity price derivatives
 
Derivatives - current
 
$
25

 
$
(18
)
 
$
7

Commodity price derivatives
 
Derivatives - noncurrent
 
$
15

 
$
(3
)
 
12

Interest rate derivatives
 
Derivatives - noncurrent
 
$
8

 
$
—

 
8

 
 
 
 
 
 
 
 
$
27


Fair Value of Derivative Instruments as of December 31, 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
 
$
695

 
$
(1
)
 
$
694

Commodity price derivatives
 
Derivatives - noncurrent
 
$
64

 
$
—

 
64

 
 
 
 
 
 
 
 
$
758

Liability Derivatives:
 
 
 
 
 
 
Commodity price derivatives
 
Derivatives - current
 
$
1

 
$
(1
)
 
$
—

Commodity price derivatives
 
Derivatives - noncurrent
 
$
1

 
$
—

 
1

 
 
 
 
 
 
 
 
$
1



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
 
Location of Gain / (Loss) Recognized in
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 Hedging Instruments
 
Earnings on Derivatives
 
2016
 
2015
 
2016
 
2015
 
 
 
 
(in millions)
Commodity price derivatives
 
Derivative gains (losses), net
 
$
91

 
$
575

 
$
(87
)
 
$
614

Interest rate derivatives
 
Derivative gains (losses), net
 
—

 
(2
)
 
(8
)
 
3

Total
 
$
91

 
$
573

 
$
(95
)
 
$
617