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 March 31, 2018 and the weighted average oil prices for those contracts:



	2018						Year Ending December 31, 2019
	Second Quarter		Third Quarter		Fourth Quarter		Year Ending December 31, 2019
Collar contracts:
Volume (Bbl)	3,000		3,000		3,000		—
Price per Bbl:
Ceiling	$	58.05	$	58.05	$	58.05	$	—
Floor	$	45.00	$	45.00	$	45.00	$	—
Collar contracts with short puts:
Volume (Bbl)	149,000		154,000		159,000		65,000
Price per Bbl:
Ceiling	$	57.79	$	57.70	$	57.62	$	60.74
Floor	$	47.42	$	47.34	$	47.26	$	52.69
Short put	$	37.38	$	37.31	$	37.23	$	42.69

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 NGL component price volatility.

The following table sets forth the volumes per day associated with the Company's outstanding NGL derivative contracts as of March 31, 2018 and the weighted average NGL prices for those contracts:



	2018						Year Ending December 31, 2019
	Second Quarter		Third Quarter		Fourth Quarter		Year Ending December 31, 2019
Ethane basis swap contracts (a):
Volume (MMBtu)	6,920		6,920		6,920		6,920
Price differential ($/MMBtu)	$	1.60	$	1.60	$	1.60	$	1.60

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(a)	The ethane basis swap contracts reduce the price volatility of ethane forecasted for sale by the Company at Mont Belvieu, Texas-posted prices. The ethane basis swap contracts 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 6,920 MMBtu per day, which is equivalent to 2,500 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 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 March 31, 2018 and the weighted average gas prices for those contracts:



	2018						Year Ending December 31, 2019
	Second Quarter		Third Quarter		Fourth Quarter		Year Ending December 31, 2019
Swap contracts:
Volume (MMBtu)	100,000		100,000		100,000		—
Price per MMBtu	$	3.00	$	3.00	$	3.00	$	—
Collar contracts with short puts:
Volume (MMBtu)	50,000		50,000		50,000		—
Price per MMBtu:
Ceiling	$	3.40	$	3.40	$	3.40	$	—
Floor	$	2.75	$	2.75	$	2.75	$	—
Short put	$	2.25	$	2.25	$	2.25	$	—
Basis swap contracts (a):
Southern California index swap volume (MMBtu) (b)	40,000		80,000		66,522		84,932
Price differential ($/MMBtu)	$	0.30	$	0.30	$	0.50	$	0.33

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(a)

Subsequent to March 31, 2018, the Company entered into additional basis swap contracts that fix the basis differentials between the index price at which the Company sells its Permian Basin gas and the HH index price used in swap contracts and collar contracts with short puts for (i) 20,000 MMBtu per day of July 2018 through September 2019 production with a price differential of $1.54 per MMBtu and (ii) 30,000 MMBtu per day of January through September 2019 production with a price differential of $1.47 per MMBtu.


(b)	The referenced basis swap contracts 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 derivatives. 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 swap contracts to mitigate price risk.

The following table sets forth the volumes per day associated with the Company's outstanding marketing derivative contracts as of March 31, 2018 and the weighted average prices for those contracts:



	2018
	Second Quarter		Third Quarter
Average Daily Oil Transportation Commitments Associated with Derivatives (Bbl):
Basis swap contracts:
Louisiana Light Sweet index swap volume (a) (b)	10,000		6,739
Price differential ($/Bbl)	$	3.18	$	3.18
Magellan East Houston index swap volume (a)	8,659		2,022
Price differential ($/Bbl)	$	3.29	$	3.30

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(a)	The referenced basis swap contracts fix the basis differentials between NYMEX WTI and Louisiana Light Sweet or Magellan East Houston oil prices for Permian Basin oil forecasted for sale in the Gulf Coast region.


(b)	Subsequent to March 31, 2018, the Company liquidated its Louisiana Light Sweet basis swap contracts for 10,000 Bbl per day of June 2018 through August 2018 transportation commitments for a nominal gain.

Tabular disclosure of derivative financial instruments. All of the Company's derivatives are accounted for as non-hedge derivatives as of March 31, 2018 and December 31, 2017, 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 March 31, 2018
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	$	14	$	(7	)	$	7
Commodity price derivatives	Derivatives - noncurrent	$	8	$	(8	)	—
							$	7
Liability Derivatives:
Commodity price derivatives	Derivatives - current	$	340	$	(7	)	$	333
Commodity price derivatives	Derivatives - noncurrent	$	62	$	(8	)	54
							$	387



Fair Value of Derivative Instruments as of December 31, 2017
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	$	13	$	(2	)	$	11
Commodity price derivatives	Derivatives - noncurrent	$	3	$	(3	)	—
							$	11
Liability Derivatives:
Commodity price derivatives	Derivatives - current	$	234	$	(2	)	$	232
Commodity price derivatives	Derivatives - noncurrent	$	26	$	(3	)	23
							$	255

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 Instruments	Location of Gain/(Loss) Recognized in Earnings on Derivatives	Three Months Ended March 31,
Derivatives Not Designated as Hedging Instruments		2018			2017
		(in millions)
Commodity price derivatives	Derivative gains (losses), net	$	(208	)	$	151

Derivative Counterparties. 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.