Derivative Instruments

The Company seeks to reduce its exposure to commodity price volatility by hedging a portion of its production through commodity derivative instruments. When the conditions for hedge accounting are met, the Company may designate its commodity derivatives as cash flow hedges. The changes in fair value of derivative instruments that qualify for hedge accounting treatment are recorded in other comprehensive income (loss) until the hedged oil or natural gas quantities are produced. If a derivative does not qualify for hedge accounting treatment, the changes in the fair value of the derivative are recorded in the statement of operations as derivative income (expense). At December 31, 2017 and 2016, all of the Company's outstanding derivative instruments were designated as cash flow hedges.

Oil and gas sales include additions related to the settlement of gas hedges of $1.5 million, $1.8 million and $15.9 million, for the years ended December 31, 2017, 2016 and 2015, respectively. There were no settlements of Ngl or oil hedges for the years ended December 31, 2017 and 2016. Oil and gas sales include $0.5 million and $0.6 million related to settlements of Ngl and oil hedges, respectively, for the year ended December 31, 2015.

As of December 31, 2017, the Company had entered into the following gas and oil hedge contracts:



Production Period	Instrument Type	Daily Volumes	Weighted Average Price
Natural Gas:
January 2018 - March 2018	Swap	35,000 Mmbtu	$3.24

Crude Oil:
January 2018 - December 2018	Swap	250 Bbl	$55.00

At December 31, 2017, the Company had recognized a net asset of approximately $0.4 million related to the estimated fair value of these derivative contracts. Based on estimated future commodity prices as of December 31, 2017, the Company would realize a $0.3 million gain, net of taxes, during the next 12 months. This gain is expected to be reclassified to oil and gas sales based on the schedule of volumes stipulated in the derivative contracts.

Derivatives designated as hedging instruments:

The following tables reflect the fair value of the Company’s effective cash flow hedges in the consolidated financial statements (in thousands):

Effect of Cash Flow Hedges on the Consolidated Balance Sheet at December 31, 2017 and December 31, 2016:



	Commodity Derivatives
Period	Balance Sheet Location	Fair Value
December 31, 2017	Derivative asset	$	1,174
December 31, 2017	Derivative liability	$	(731	)
December 31, 2016	Derivative liability	$	(3,947	)
December 31, 2016	Other long-term liabilities	$	(803	)

Effect of Cash Flow Hedges on the Consolidated Statement of Operations for years ended December 31, 2017, 2016 and 2015:



Instrument	Amount of Gain (Loss) Recognized in Other Comprehensive Income			Location of Gain Reclassified into Income	Amount of Gain Reclassified into Income
Commodity Derivatives at December 31, 2017	$	6,654		Oil and gas sales	$	1,461
Commodity Derivatives at December 31, 2016	$	(4,447	)	Oil and gas sales	$	1,811
Commodity Derivatives at December 31, 2015	$	9,991		Oil and gas sales	$	17,114