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, all of the Company's outstanding derivative instruments were designated as cash flow hedges. The Company had no outstanding derivative contracts as of December 31, 2018.

Oil and gas sales include additions related to the settlement of gas hedges of $0.8 million, $1.5 million and $1.8 million, for the years ended December 31, 2018, 2017 and 2016, respectively. Oil and gas sales include reductions of $1.4 million related to the settlement of oil hedges for the year ended December 31, 2018. There were no settlements of Ngls for any period presented or oil hedges for the years ended December 31, 2017 and 2016. On June 14, 2018, the Company's hedging counterparty, Koch Supply & Trading LP, terminated the only outstanding hedge contract resulting in a settlement of $0.5 million. The settlement at the termination date remained in accumulated other comprehensive loss and was reclassified to earnings as the hedged volumes were produced over the original term of the contract.

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:



	Commodity Derivatives
Period	Balance Sheet Location	Fair Value
December 31, 2017	Derivative asset	$	1,174
December 31, 2017	Derivative liability	$	(731	)

Effect of Cash Flow Hedges on the Consolidated Statement of Operations for years ended December 31, 2018, 2017 and 2016:



Instrument	Amount of Gain (Loss) Recognized in Other Comprehensive Income			Location of Gain (Loss) Reclassified into Income	Amount of Gain (Loss) Reclassified into Income
Commodity Derivatives at December 31, 2018	$	(990	)	Oil and gas sales	$	(622	)
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