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. These derivative commodity instruments are accounted for as mark-to-market transactions with gains or losses recognized in the period of change in gain (loss) on derivative instruments, net. Such instruments may include over-the-counter (OTC) swaps, options 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 tables detail the offsetting of derivative assets and liabilities as well as the fair values of derivatives on the consolidated balance sheets:



(in thousands)	September 30, 2018
										Gross Amounts Not Offset in the Balance Sheets
	Gross Amounts Recognized at Fair Value			Gross Amounts Offset in the Balance Sheets			Net Amounts 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	$	55,455		$	(51,229	)	$	4,226		$	—	$	—	$	4,226
Noncurrent derivative instruments	3,592			(3,592		)	—			—		—		—
Total derivative assets	59,047			(54,821		)	4,226			—		—		4,226
Liabilities
Derivative instruments	224,001			(51,229		)	172,772			—		—		172,772
Noncurrent derivative instruments	61,049			(3,592		)	57,457			—		—		57,457
Total derivative liabilities	285,050			(54,821		)	230,229			—		—		230,229
Total derivatives	$	(226,003	)	$	—		$	(226,003	)	$	—	$	—	$	(226,003	)



(in thousands)	December 31, 2017
										Gross Amounts Not Offset in the Balance Sheets
	Gross Amounts Recognized at Fair Value			Gross Amounts Offset in the Balance Sheets			Net Amounts 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	$	1,758		$	(1,758	)	$	—		$	—	$	—	$	—
Noncurrent derivative instruments	42			(42		)	—			—		—		—
Total derivative assets	1,800			(1,800		)	—			—		—		—
Liabilities
Derivative instruments	73,137			(1,758		)	71,379			—		—		71,379
Noncurrent derivative instruments	8,928			(42		)	8,886			—		—		8,886
Total derivative liabilities	82,065			(1,800		)	80,265			—		—		80,265
Total derivatives	$	(80,265	)	$	—		$	(80,265	)	$	—	$	—	$	(80,265	)

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 loss position with all thirteen our active counterparties at September 30, 2018.

The following table details the effect of open and closed derivative commodity instruments not designated as hedging instruments on the consolidated statements of operations:



	Location on Statement of Operations	Three months ended
		September 30,
(in thousands)		2018			2017
Gain (loss) recognized in income on derivatives	Gain (loss) on derivative instruments, net	$	(154,628	)	$	(57,610	)

As of September 30, 2018, Energen had entered into the following derivative transactions for the remainder of 2018 and subsequent years:



Production Period	Description	Total Hedged Volumes		Weighted Average Contract Price
Oil
2018	NYMEX Swaps	540	MBbl	$60.25 Bbl
	NYMEX Three-Way Collars	3,375	MBbl
	Ceiling sold price (call)			$60.04 Bbl
	Floor purchased price (put)			$45.47 Bbl
	Floor sold price (put)			$35.47 Bbl
2019	NYMEX Swaps	8,280	MBbl	$61.66 Bbl
	NYMEX Three-Way Collars	5,760	MBbl
	Ceiling sold price (call)			$61.65 Bbl
	Floor purchased price (put)			$45.94 Bbl
	Floor sold price (put)			$35.94 Bbl
Oil Basis Differential
2018	WTI/WTI Basis Swaps	3,150	MBbl	$(1.46) Bbl
2019	WTI/WTI Basis Swaps	16,560	MBbl	$(5.52) Bbl
2020	WTI/WTI Basis Swaps	15,120	MBbl	$(1.20) Bbl
Natural Gas Liquids
2018	Liquids Swaps	34.0	MMGal	$0.61 Gal
2019	Liquids Swaps	115.9	MMGal	$0.65 Gal
Natural Gas
2018	Basin Specific Swaps - West Texas/Waha	1.8	Bcf	$1.70 Mcf
2018	Basin Specific Swaps - Permian	0.9	Bcf	$2.56 Mcf
WTI - West Texas Intermediate/Midland, WTI - West Texas Intermediate/Cushing

As of September 30, 2018, the maximum term over which Energen has hedged exposures to the variability of cash flows is through December 31, 2020.

Location on Statement of Operations

Nine months ended

September 30,

(in thousands)

Gain (loss) recognized in income on derivatives

Gain (loss) on derivative instruments, net