Derivative Commodity Instruments

9 Months Ended

Sep. 30, 2015

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Commodity Instruments

DERIVATIVE COMMODITY INSTRUMENTS

We periodically enter into derivative commodity instruments to hedge our exposure to price fluctuations on oil, natural gas liquids and natural gas production. Such instruments may include over-the-counter (OTC) swaps and basis swaps typically executed with investment and commercial banks and energy-trading firms. Derivative transactions are pursuant to standing authorizations by the Board of Directors, which do not authorize speculative positions.

The following table details gain (loss) on derivative instruments, net, as follows:

	Three months ended					Nine months ended
	September 30,					September 30,
(in thousands)	2015			2014		2015			2014
Open non-cash mark-to-market gains (losses) on derivative instruments	$	(1,164	)	$	147,287	$	(177,682	)	$	53,985
Closed gains (losses) on derivative instruments	108,337			448		267,927			(44,487		)
Gain on derivative instruments, net	$	107,173		$	147,735	$	90,245		$	9,498

The following tables detail the offsetting of derivative assets and liabilities as well as the fair values of derivatives on the balance sheets:

(in thousands)	September 30, 2015
								Gross Amounts Not Offset in the Balance Sheets
	Gross Amounts Recognized at Fair Value		Gross Amounts Offset in the Balance Sheets			Net Amount Presented in the Balance Sheets		Financial Instruments		Cash Collateral Received		Net Fair Value Presented in the Balance Sheets
Derivatives not designated as hedging instruments
Assets
Derivative instruments	$	176,061	$	(22,245	)	$	153,816	$	—	$	—	$	153,816
Noncurrent derivative instruments	3,487		(970		)	2,517		—		—		2,517
Total derivative assets	179,548		(23,215		)	156,333		—		—		156,333
Liabilities
Derivative instruments	25,324		(22,245		)	3,079		—		—		3,079
Noncurrent derivative instruments	3,894		(970		)	2,924		—		—		2,924
Total derivative liabilities	29,218		(23,215		)	6,003		—		—		6,003
Total derivatives	$	150,330	$	—		$	150,330	$	—	$	—	$	150,330

(in thousands)	December 31, 2014
								Gross Amounts Not Offset in the Balance Sheets
	Gross Amounts Recognized at Fair Value		Gross Amounts Offset in the Balance Sheets			Net Amount Presented in the Balance Sheets		Financial Instruments		Cash Collateral Received		Net Fair Value Presented in the Balance Sheets
Derivatives not designated as hedging instruments
Assets
Derivative instruments	$	339,977	$	(17,640	)	$	322,337	$	—	$	—	$	322,337
Noncurrent derivative instruments	—		—			—		—		—		—
Total derivative assets	339,977		(17,640		)	322,337		—		—		322,337
Liabilities
Derivative instruments	18,628		(17,640		)	988		—		—		988
Noncurrent derivative instruments	—		—			—		—		—		—
Total derivative liabilities	18,628		(17,640		)	988		—		—		988
Total derivatives	$	321,349	$	—		$	321,349	$	—	$	—	$	321,349

Due to the volatility of commodity prices, the estimated fair value of our derivative instruments is subject to fluctuation from period to period, which could result in significant differences between the current estimated fair value and the ultimate settlement price. Additionally, Energen is at risk of economic loss based upon the creditworthiness of our counterparties. We were in a net gain position with twelve of our active counterparties and in a net loss position with the remaining two at September 30, 2015. The largest counterparty net gain positions at September 30, 2015, Morgan Stanley Capital Group Inc., J.P. Morgan Ventures Energy Corporation, Merrill Lynch Commodities, Inc., Canadian Imperial Bank of Commerce and BP Corporation North America Inc., constituted approximately $24.1 million, $22.6 million, $20.5 million, $14.0 million and $13.9 million, respectively, of Energen’s total gain on fair value of derivatives.

The following tables detail the effect of derivative commodity instruments in cash flow hedging relationships on the financial statements:

(in thousands)	Location on Statements of Income	Three months ended September 30, 2014		Nine months ended September 30, 2014
Net gain recognized in other comprehensive income on derivatives (effective portion), net of tax of $18 and $25	—	$	29	40
Gain reclassified from accumulated other comprehensive income into income (effective portion)	Gain (loss) on derivative instruments, net	$	5,992	15,781

The following tables detail the effect of open and closed derivative commodity instruments not designated as hedging instruments on the income statement:

(in thousands)	Location on Statements of Income	Three months ended September 30, 2015		Three months ended September 30, 2014
Gain recognized in income on derivatives	Gain (loss) on derivative instruments, net	$	107,173	$	141,743

(in thousands)	Location on Statements of Income	Nine months ended September 30, 2015		Nine months ended September 30, 2014
Gain (loss) recognized in income on derivatives	Gain (loss) on derivative instruments, net	$	90,245	(6,283	)

As of September 30, 2015, Energen had entered into the following transactions for the remainder of 2015 and subsequent years:

Production Period	Total Hedged Volumes		Average Contract Price	Description
Oil
2015	3,513	MBbl	$78.28 Bbl	NYMEX Swaps
2016	1,086	MBbl	$63.80 Bbl	NYMEX Swaps
Oil Basis Differential
2015	1,890	MBbl	$(4.55) Bbl	WTI/WTI Basis Swaps
2015	540	MBbl	$(4.30) Bbl	WTS/WTI Basis Swaps
2016	7,524	MBbl	$(1.92) Bbl	WTI/WTI Basis Swaps
2016	2,117	MBbl	$(1.63) Bbl	WTS/WTI Basis Swaps
Natural Gas
2015	5.5	Bcf	$4.14 Mcf	Basin Specific Swaps - San Juan
2015	1.5	Bcf	$4.20 Mcf	Basin Specific Swaps - Permian
WTI - West Texas Intermediate/Midland, WTI - West Texas Intermediate/Cushing
WTS - West Texas Sour/Midland, WTI - West Texas Intermediate/Cushing

As of September 30, 2015, the maximum term over which Energen has hedged exposures to the variability of cash flows is through December 31, 2016.