5. Derivative Instruments and Hedging Activities

Objective and Strategies for Using Derivative Instruments We are exposed to fluctuations in crude oil, natural gas and NGL pricing. In order to mitigate the effect of commodity price volatility and enhance the predictability of cash flows relating to the marketing of our global crude oil and domestic natural gas, we enter into crude oil and natural gas price hedging arrangements.

While these instruments mitigate the cash flow risk of future decreases in commodity prices, they may also curtail benefits from future increases in commodity prices. See Note 7. Fair Value Measurements and Disclosures for a discussion of methods and assumptions used to estimate the fair values of our derivative instruments.

Unsettled Commodity Derivative Instruments As of September 30, 2017, the following crude oil derivative contracts were outstanding:



				Swaps					Collars
Settlement Period	Type of Contract	Index	Bbls Per Day	Weighted Average Differential			Weighted Average Fixed Price		Weighted Average Short Put Price		Weighted Average Floor Price		Weighted Average Ceiling Price
2H17 ⁽¹⁾	Call Option ⁽²⁾	NYMEX WTI	3,000	$	—		$	—	$	—	$	—	$	60.12
2H17 ⁽¹⁾	Three-Way Collars	ICE Brent	5,000	—			—		43.00		50.00		64.00
2017	Three-Way Collars	NYMEX WTI	24,000	—			—		39.08		47.71		61.20
2017	Two-Way Collars	NYMEX WTI	10,804	—			—		—		40.80		52.72
2017	Swaps	NYMEX WTI	4,293	—			50.84		—		—		—
2017	Call Option ⁽²⁾	NYMEX WTI	3,000	—			—		—		—		57.00
2017	Three-Way Collars	ICE Brent	2,000	—			—		43.00		50.00		63.15
2017	Three-Way Collars	Dated Brent	2,000	—			—		35.00		45.00		66.33
2018	Three-Way Collars	NYMEX WTI	10,000	—			—		45.50		52.50		69.09
2018	Three-Way Collars	Dated Brent	3,000	—			—		40.00		50.00		70.41
2018	Swaptions ⁽³⁾	NYMEX WTI	3,000	—			56.10		—		—		—
2018	Three-Way Collars	ICE Brent	5,000	—			—		43.00		50.00		59.50
2018	Two-Way Collars	ICE Brent	2,000	—			—		—		50.00		55.25
2018	Basis Swap	⁽⁴⁾	8,000	(0.78		)	—		—		—		—
2019	Three-Way Collars	ICE Brent	3,000	—			—		43.00		50.00		64.07
2019	Basis Swap	⁽⁴⁾	12,000	(1.01		)	—		—		—		—


⁽¹⁾	We have entered into contracts for portions of 2017 resulting in the difference in hedged volumes for the full year.


⁽²⁾	We have entered into crude oil derivative enhanced swaps with strike prices that are above the market value as of trade commencement. To effect the enhanced swap structure, we sold call options to the applicable counterparty to receive the above market terms.


⁽³⁾	We have entered into certain derivative contracts (swaptions), which give counterparties the right, but not the obligation, to enter into swap agreements with us on the option expiration dates.


⁽⁴⁾	We have entered into crude oil basis swap contracts in order to fix the differential between pricing in Midland, Texas, and Cushing, Oklahoma. The weighted average differential represents the amount of reduction to Cushing, Oklahoma, prices for the notional volumes covered by the basis swap contracts.

As of September 30, 2017, the following natural gas derivative contracts were outstanding:



				Swaps		Collars
Settlement Period	Type of Contract	Index	MMBtu Per Day	Weighted Average Fixed Price		Weighted Average Short Put Price		Weighted Average Floor Price		Weighted Average Ceiling Price
2017	Three-Way Collars	NYMEX HH	110,000	$	—	$	2.58	$	2.93	$	3.65
2017	Two-Way Collars	NYMEX HH	70,000	—		—		2.93		3.32
2018	Three-Way Collars	NYMEX HH	120,000	—		2.50		2.88		3.65
2018	Swaptions⁽¹⁾	NYMEX HH	30,000	3.36		—		—		—


⁽¹⁾	We have entered into certain derivative contracts (swaptions), which give counterparties the right, but not the obligation, to enter into swap agreements with us on the option expiration dates.

Fair Value Amounts and (Gain) Loss on Commodity Derivative Instruments The fair values of commodity derivative instruments in our consolidated balance sheets were as follows:



	Fair Value of Derivative Instruments
	Asset Derivative Instruments						Liability Derivative Instruments
	September 30, 2017			December 31, 2016			September 30, 2017			December 31, 2016
(millions)	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Commodity Derivative Instruments	Current Assets	$	7	Current Assets	$	—	Current Liabilities	$	4	Current Liabilities	$	102
	Noncurrent Assets	5		Noncurrent Assets	—		Noncurrent Liabilities	2		Noncurrent Liabilities	14
Total		$	12		$	—		$	6		$	116

The effect of commodity derivative instruments on our consolidated statements of operations was as follows:



	Three Months Ended September 30,						Nine Months Ended September 30,
(millions)	2017			2016			2017			2016
Cash (Received) Paid in Settlement of Commodity Derivative Instruments
Crude Oil	$	(4	)	$	(119	)	$	(20	)	$	(395	)
Natural Gas	—			(13		)	2			(59		)
Total Cash Received in Settlement of Commodity Derivative Instruments	(4		)	(132		)	(18		)	(454		)
Non-cash Portion of Loss (Gain) on Commodity Derivative Instruments
Crude Oil	27			80			(64		)	441
Natural Gas	(1		)	(3		)	(63		)	66
Total Non-cash Portion of Loss (Gain) on Commodity Derivative Instruments	26			77			(127		)	507
Loss (Gain) on Commodity Derivative Instruments
Crude Oil	23			(39		)	(84		)	46
Natural Gas	(1		)	(16		)	(61		)	7
Total Loss (Gain) on Commodity Derivative Instruments	$	22		$	(55	)	$	(145	)	$	53