DERIVATIVES

Commodity Derivatives

We have entered into various types of derivative transactions covering some of our projected natural gas, NGLs, and oil production. These transactions are intended to reduce our exposure to market price volatility by setting the price(s) we will receive for that production. Our decisions on the price(s), type, and quantity of our production subject to a derivative contract are based, in part, on our view of current and future market conditions. As of December 31, 2017, our derivative transactions consisted of the following types of hedges:


•	Swaps. We receive or pay a fixed price for the commodity and pay or receive a floating market price to the counterparty. The fixed-price payment and the floating-price payment are netted, resulting in a net amount due to or from the counterparty.


•	Basis Swaps. We receive or pay the NYMEX settlement value plus or minus a fixed delivery point price for the commodity and pay or receive the published index price at the specified delivery point. We use basis swaps to hedge the price risk between NYMEX and its physical delivery points.


•	Collars. A collar contains a fixed floor price (put) and a ceiling price (call). If the market price exceeds the call strike price or falls below the put strike price, we receive the fixed price and pay the market price. If the market price is between the call and the put strike price, no payments are due from either party.

•

Three-way collars. A three-way collar contains a fixed floor price (long put), fixed subfloor price (short put) and a fixed ceiling price (short call). If the market price exceeds the ceiling strike price, we receive the ceiling strike price and pay the market price. If the market price is between the ceiling and the floor strike price, no payments are due from either party. If the market price is below the floor price but above the subfloor price, we receive the floor strike price and pay the market price. If the market price is below the subfloor price, we receive the market price plus the difference between the floor and subfloor strike prices and pay the market price.

We have documented policies and procedures to monitor and control the use of derivative instruments. We do not engage in derivative transactions for speculative purposes. All derivatives are recognized on the balance sheet and measured at fair value. Any changes in our derivatives' fair value occurring before their maturity (i.e., temporary fluctuations in value) are reported in gain (loss) on derivatives in our Consolidated Statements of Operations.

At December 31, 2017, the following non-designated hedges were outstanding:



Term	Commodity	Contracted Volume	Weighted Average Fixed Price for Swaps	Contracted Market
Jan’18 – Dec’18	Natural gas – swap	20,000 MMBtu/day	$3.013	IF – NYMEX (HH)
Apr'18 – Oct'18	Natural gas – swap	10,000 MMBtu/day	$2.990	IF – NYMEX (HH)
Jan’18 – Mar'18	Natural gas – basis swap	10,000 MMBtu/day	$(0.208)	IF – NYMEX (HH)
Nov’18 – Dec'18	Natural gas – basis swap	10,000 MMBtu/day	$(0.208)	IF – NYMEX (HH)
Jan’18 – Mar'18	Natural gas – three-way collar	60,000 MMBtu/day	$3.29 - $2.63 - $4.07	IF – NYMEX (HH)
Apr’18 – Dec'18	Natural gas – three-way collar	20,000 MMBtu/day	$3.00 - $2.50 - $3.51	IF – NYMEX (HH)
Jan’18 – Dec'18	Crude oil – swap	3,000 Bbl/day	$51.36	WTI – NYMEX
Jan’18 – Mar'18	Crude oil – collar	500 Bbl/day	$55.00 - $59.50	WTI – NYMEX
Jan’18 – Dec'18	Crude oil – three-way collar	2,000 Bbl/day	$47.50 - $37.50 - $56.08	WTI – NYMEX
Apr’18 – Sep'18	Liquids (Propane) – swap	1,000 Bbl/day	$31.16	MONT BELVIEU

After December 31, 2017, the following non-designated hedges were entered into:



Term	Commodity	Contracted Volume	Weighted Average Fixed Price for Swaps	Contracted Market
Apr’18 – Sep'18	Natural gas – swap	10,000 MMBtu/day	$2.925	IF – NYMEX (HH)
Apr’18 – Sep'18	Natural gas – collar	30,000 MMBtu/day	$2.67 - $2.97	IF – NYMEX (HH)
Feb’18 – Dec'18	Natural gas – basis swap	10,000 MMBtu/day	$(0.678)	PEPL
Feb’18 – Dec'18	Natural gas – basis swap	10,000 MMBtu/day	$(0.568)	NGPL MIDCON
Apr’18 – Oct'18	Natural gas – basis swap	10,000 MMBtu/day	$(0.190)	NGPL TEXOK
Jan'19 – Dec'19	Natural gas – basis swap	10,000 MMBtu/day	$(0.728)	PEPL
Jan'19 – Dec'19	Natural gas – basis swap	10,000 MMBtu/day	$(0.625)	NGPL MIDCON
Jan'19 – Dec'19	Natural gas – basis swap	20,000 MMBtu/day	$(0.273)	NGPL TEXOK
Jan'20 – Dec'20	Natural gas – basis swap	20,000 MMBtu/day	$(0.280)	NGPL TEXOK
Apr'18 – Dec'18	Crude oil – swap	1,000 Bbl/day	$60.00	WTI – NYMEX
Apr’18 – Sep'18	Liquids – swap	500 Bbl/day	$34.10	MONT BELVIEU

The following tables present the fair values and locations of the derivative transactions recorded in our Consolidated Balance Sheets at December 31:



		Derivative Assets Fair Value
	Balance Sheet Location	2017		2016
		(In thousands)
Commodity derivatives:
Current	Current derivative assets	$	721	$	—
Long-term	Non-current derivative assets	—		377
Total derivative assets		$	721	$	377



		Derivative Liabilities Fair Value
	Balance Sheet Location	2017		2016
		(In thousands)
Commodity derivatives:
Current	Current derivative liabilities	$	7,763	$	21,564
Long-term	Non-current derivative liabilities	—		415
Total derivative liabilities		$	7,763	$	21,979

If a legal right of set-off exists, we net the value of the derivative transactions we have with the same counterparty in our Consolidated Balance Sheets.

Effect of derivative instruments on the Consolidated Statements of Operations for the year ended December 31:



Derivatives Instruments	Location of Gain or (Loss) Recognized in Income on Derivative	Amount of Gain or (Loss) Recognized in Income on Derivative
Derivatives Instruments		2017		2016
		(In thousands)
Commodity derivatives	Gain (loss) on derivatives ⁽¹⁾	$	14,732	$	(22,813	)
Total		$	14,732	$	(22,813	)

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(1)	Amount settled during the period are gains of $173 and $9,658, respectively.