Derivative Financial Instruments

12 Months Ended

Dec. 31, 2015

Derivative Financial Instruments

Derivative Financial Instruments

12.Derivative Financial Instruments

The Company’s Bankruptcy Petition in July 2015 represented an event of default under Sabine’s existing derivative agreements resulting in a termination right by counterparties on all derivative positions at July 15, 2015. Additionally, certain of the Company’s derivative positions were terminated prior to July 15, 2015 as a result of defaults under Sabine’s derivative agreements that occurred prior to the filing of the Bankruptcy Petition. The terminations resulted in settlements of approximately $24.3 million for which such proceeds were used to reduce our New Revolving Credit Facility. Other terminations resulted in approximately $70.8 million of direct offsets against the New Revolving Credit Facility. As a result, the Company no longer has any derivatives beyond July 2015.

In February 2015 the Company executed derivative contracts as market conditions allowed in order to economically hedge anticipated future cash flows from oil and natural gas producing activities. These included both oil and natural gas fixed-price swap agreements covering certain portions of anticipated 2016 and 2017 production volumes. Additionally, prior to the year ended December 31, 2015, the Company executed option contracts including purchased and written oil call agreements, as well as purchased oil put agreements, covering certain portions of anticipated 2016 oil production. No material premiums were recognized as a result of these option agreements. Sabine sold a swaption agreement allowing the counterparty the option to execute a fixed price swap agreement at a contracted price on contracted volumes before an expiration date. None of the fixed-price swap or option contracts were designated for hedge accounting, with all mark-to-market changes in fair value recognized currently in earnings.

Throughout the year ended December 31, 2014, the Company executed derivative contracts as market conditions allowed in order to economically hedge anticipated future cash flows from oil and natural gas producing activities. These include both oil and natural gas fixed-price swap agreements covering certain portions of anticipated 2015 production volumes. The Company executed option contracts including purchased and written oil and natural gas call agreements, as well as purchased and written oil and natural gas put agreements, covering certain portions of anticipated 2015 oil and natural gas production. Additionally, Sabine sold a swaption agreement allowing the counterparty the option to execute a fixed price swap agreement at a contracted price on contracted volumes before an expiration date. Sabine’s sold swaption contract expired at December 31, 2015. No material premiums were recognized as a result of these option agreements. None of the fixed-price swap or option contracts were designated for hedge accounting, with all mark to market changes in fair value recognized currently in earnings.

The fair value for each derivative takes credit risk into consideration, whether it be Sabine’s counterparties’ or Sabine’s own. Derivatives are classified as current or non-current derivative assets and liabilities, based on the expected timing of settlements.

The table below presents the Company’s “Gain on derivative instruments” located in Other income (expenses) in the Consolidated Statements of Operations:

	For the Year Ended December 31,
	2015		2014		2013
	(in thousands)
Gain on derivative instruments	$	33,897	$	121,669	$	814

Sabine received $92.0 million, paid $10.8 million and received $46.2million on settlements of derivatives in 2015, 2014 and 2013, respectively.

Sabine’s derivative contracts are executed with counterparties under certain master netting agreements that allow the Company to offset assets due from, and liabilities due to, the counterparties. The table below presents the carrying value of Sabine’s derivative assets and liabilities both before and after the impact of such netting agreements on the Consolidated Balance Sheets as of December 31, 2014. As a result of terminations, the Company no longer has any derivatives contracts in place at December 31, 2015:

	Derivative Assets as of December 31, 2014
		Fair Value
		(in thousands)
Current assets	Derivative Instruments	$	191,765
Total current asset fair value			191,765
Less:  Counterparty set-off (1)			(31,548)
Total derivative asset net fair value		$	160,217

	Derivative Liabilities as of December 31, 2014
		Fair Value
		(in thousands)
Current liabilities	DerivativeInstruments	$	(4,645)
Current assets	DerivativeInstruments		(31,548)
Total current liability fair value			(36,193)
Long-term liabilities	DerivativeInstruments		(2,269)
Total long-term liability fair value			(2,269)
Less:  Counterparty set-off (1)			31,548
Total derivative liability net fair value		$	(6,914)

(1) Impact of counterparty right of set-off for derivative instruments subject to certain master netting agreements.