3.	Derivative Financial Instruments

Objectives and Strategies

Devon periodically enters into derivative financial instruments with respect to a portion of its oil, gas and NGL production to hedge future prices received. Additionally, Devon and EnLink periodically enter into derivative financial instruments with respect to a portion of their oil, gas and NGL marketing activities. These commodity derivative financial instruments include financial price swaps, basis swaps and costless price collars. Devon periodically enters into interest rate swaps to manage its exposure to interest rate volatility and foreign exchange forward contracts to manage its exposure to fluctuations in the U.S. and Canadian dollar exchange rates. As of September 30, 2017, Devon did not have any open foreign exchange contracts.

Devon does not intend to hold or issue derivative financial instruments for speculative trading purposes and has elected not to designate any of its derivative instruments for hedge accounting treatment.

Counterparty Credit Risk

By using derivative financial instruments, Devon is exposed to credit risk. Credit risk is the failure of the counterparty to perform under the terms of the derivative contract. To mitigate this risk, the hedging instruments are placed with a number of counterparties whom Devon believes are acceptable credit risks. It is Devon’s policy to enter into derivative contracts only with investment-grade rated counterparties deemed by management to be competent and competitive market makers. Additionally, Devon’s derivative contracts generally contain provisions that provide for collateral payments if Devon’s or its counterparty’s credit rating falls below certain credit rating levels.

Commodity Derivatives

As of September 30, 2017, Devon had the following open oil derivative positions. The first table presents Devon’s oil derivatives that settle against the average of the prompt month NYMEX WTI futures price. The second table presents Devon’s oil derivatives that settle against the respective indices noted within the table.

	Price Swaps				Price Collars
Period	Volume (Bbls/d)		Weighted Average Price ($/Bbl)		Volume (Bbls/d)		Weighted Average Floor Price ($/Bbl)		Weighted Average Ceiling Price ($/Bbl)
Q4 2017		82,167	$	53.87		79,200	$	45.51	$	57.41
Q1-Q4 2018		22,792	$	51.13		34,121	$	45.71	$	55.71
Q1-Q4 2019		1,356	$	49.79		2,096	$	44.10	$	54.10

	Oil Basis Swaps
Period	Index	Volume (Bbls/d)		Weighted Average Differential to WTI ($/Bbl)
Q4 2017	Midland Sweet		20,000	$	(0.41	)
Q4 2017	Western Canadian Select		87,304	$	(14.57	)
Q1-Q4 2018	Midland Sweet		23,000	$	(1.02	)
Q1-Q4 2018	Western Canadian Select		59,718	$	(14.85	)
Q1-Q4 2019	Midland Sweet		1,000	$	(0.80	)

As of September 30, 2017, Devon had the following open natural gas derivative positions. The first table presents Devon’s natural gas derivatives that settle against the Inside FERC first of the month Henry Hub index. The second table presents Devon’s natural gas derivatives that settle against the respective indices noted within the table.

	Price Swaps				Price Collars
Period	Volume (MMBtu/d)		Weighted Average Price ($/MMBtu)		Volume (MMBtu/d)		Weighted Average Floor Price ($/MMBtu)		Weighted Average Ceiling Price ($/MMBtu)
Q4 2017		331,196	$	3.21		455,000	$	3.03	$	3.41
Q1-Q4 2018		261,888	$	3.09		149,982	$	2.99	$	3.30
Q1-Q4 2019		6,164	$	3.08		8,630	$	2.92	$	3.22

	Natural Gas Basis Swaps
Period	Index	Volume (MMBtu/d)		Weighted Average Differential to Henry Hub ($/MMBtu)
Q4 2017	Panhandle Eastern Pipe Line		150,000	$	(0.34	)
Q4 2017	El Paso Natural Gas		80,000	$	(0.13	)
Q4 2017	Houston Ship Channel		35,000	$	0.06
Q4 2017	Transco Zone 4		205,000	$	0.03
Q1-Q4 2018	Panhandle Eastern Pipe Line		50,000	$	(0.29	)

As of September 30, 2017, Devon had the following open NGL derivative positions. Devon’s NGL positions settle against the average of the prompt month OPIS Mont Belvieu, Texas index.

		Price Swaps				Price Collars
Period	Product	Volume (Bbls/d)		Weighted Average Price ($/Bbl)		Volume (Bbls/d)		Weighted Average Floor Price ($/Bbl)		Weighted Average Ceiling Price ($/Bbl)
Q4 2017	Propane		2,663	$	31.98		1,000	$	28.35	$	30.45

As of September 30, 2017, EnLink had the following open derivative positions associated with gas processing and fractionation. EnLink’s NGL positions settle by purity product against the average of the prompt month OPIS Mont Belvieu, Texas index.

Period	Product	Volume (Total)			Weighted Average Price Paid	Weighted Average Price Received
Q4 2017-Q3 2018	Propane		537	MBbls	Index	$0.66/gal
Q4 2017-Q3 2018	Normal Butane		344	MBbls	Index	$0.77/gal

Interest Rate Derivatives

As of September 30, 2017, Devon had the following open interest rate derivative positions:

Notional		Rate Received		Rate Paid		Expiration
(Millions)
$	750	Three Month LIBOR			2.98%	December 2048 ⁽¹⁾
$	100		1.76%	Three Month LIBOR		January 2019

(1)	Mandatory settlement in December 2018.

Financial Statement Presentation

The following table presents the net gains and losses by derivative financial instrument type followed by the corresponding individual consolidated comprehensive statements of earnings caption.

	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
	(Millions)
Commodity derivatives:
Oil, gas and NGL derivatives	$	(144	)	$	79		$	214		$	(30	)
Marketing and midstream revenues		(5	)		(1	)		3			(7	)
Interest rate derivatives:
Other nonoperating items		(4	)		(20	)		(19	)		(163	)
Foreign currency derivatives:
Other nonoperating items		—			—			—			(159	)
Net gains (losses) recognized	$	(153	)	$	58		$	198		$	(359	)

The following table presents the derivative fair values by derivative financial instrument type followed by the corresponding individual consolidated balance sheet caption.

	September 30, 2017		December 31, 2016
	(Millions)
Commodity derivative assets:
Other current assets	$	39	$	9
Other long-term assets		4		1
Interest rate derivative assets:
Other current assets		1		1
Total derivative assets	$	44	$	11
Commodity derivative liabilities:
Other current liabilities	$	53	$	187
Other long-term liabilities		7		16
Interest rate derivative liabilities:
Other current liabilities		1		—
Other long-term liabilities		61		41
Total derivative liabilities	$	122	$	244