DERIVATIVES AND FAIR VALUE MEASUREMENTS

The following table categorizes our commodity derivative instruments based upon the level of the inputs used in estimating the fair value:



	Asset Derivatives				Liability Derivatives
	September 30, 2015		December 31, 2014		September 30, 2015		December 31, 2014

	(in thousands)				(in thousands)
Level 2 derivative instruments	$	—	$	104,608	$	—	$	—
Level 3 derivative instruments	—		44,959		—		—
Total	$	—	$	149,567	$	—	$	—

The fair value of “Level 2” derivative instruments included in these disclosures was estimated using inputs quoted in active markets for the periods covered by the derivatives. The fair value of derivative instruments designated as “Level 3” at December 31, 2014, was estimated using prices quoted in markets where there is insufficient market activity for consideration as “Level 2” instruments. At December 31, 2014, only our natural gas derivatives with an original tenure of 10 years utilized “Level 3” inputs, primarily due to comparatively less market data available for the later portion of their term compared with our other shorter term derivatives. The fair value of both the “Level 2” and the “Level 3” assets and liabilities are determined using a discounted cash flow model using the terms of the derivative instrument, market prices for the periods covered by the derivatives, and the credit adjusted risk-free interest rates. The “Level 3” unobservable input at December 31, 2014 was the market prices for natural gas for the period from 2019 to 2021, as there is not an active market for that period of time. These unobservable inputs included within the fair value calculation range at December 31, 2014 from $2.88 to $4.60 and are based upon prices quoted in active markets for the period of time available. A decrease of these unobservable inputs would increase the fair value, while an increase would decrease the fair value.

The following table identifies the changes in “Level 3” net asset derivative fair values for the periods indicated:



	For the Three Months Ended September 30,
	2015		2014

	(in thousands)
Balance at beginning of period	$	—	$	(5,533	)
Total gains (losses) for the period:
Unrealized gain on derivatives	—		24,829
Settlements in net derivative gains (losses)	—		(1,542		)
Balance at end of period	$	—	$	17,754

Total gains included in net derivative gains (losses) attributable to the change in unrealized gains related to assets still held at the reporting date	$	—	$	24,485



	For the Nine Months Ended September 30,
	2015			2014

	(in thousands)
Balance at beginning of period	$	44,959		$	23,485
Total gains (losses) for the period:
Unrealized loss on derivatives	(109,240		)	(6,488		)
Settlements in net derivative gains (losses)	64,281			757
Balance at end of period	$	—		$	17,754

Total losses included in net derivative gains (losses) attributable to the change in unrealized losses related to assets still held at the reporting date	$	—		$	(2,476	)

Commodity Price Derivatives

In 2015, all of our derivatives were terminated either by us or the counterparties to such derivatives in anticipation or as a result of our Chapter 11 filings or through negotiations during the Chapter 11 proceedings. We no longer have any derivatives. The cash proceeds from derivatives terminated in 2015 were $138.9 million.

Effective December 31, 2012, we discontinued the use of hedge accounting. Changes in value subsequent to this date are recognized in net derivative gains (losses) in the period in which they occur. The net deferred hedge gain that was included in AOCI as of December 31, 2012 is being released into revenue from natural gas, NGL and oil production over the original term of the hedging relationship (through 2021). Gains from the effective portion of derivative assets and liabilities held in AOCI expected to be reclassified into earnings during the following twelve months will result in production revenue of $12.4 million net of income taxes.

Interest Rate Derivatives

In 2010, we executed early settlements of our interest rate swaps that were designated as fair value hedges. Upon the early settlements, we recorded the resulting gain as a fair value adjustment to our debt and began to recognize the deferred gain as a reduction of interest expense over the lives of the respective notes. During the nine months ended September 30, 2015 and 2014, we recognized $0.5 million and $1.5 million, respectively, of those deferred gains as a reduction of interest expense. As a result of the Chapter 11 proceedings, the remainder of the deferred gains related to these interest rate swaps were included in Reorganization Items, net.

Fair Value Disclosures

The estimated fair value of our derivative instruments at September 30, 2015 and December 31, 2014 were as follows:



	Asset Derivatives				Liability Derivatives
	September 30, 2015		December 31, 2014		September 30, 2015		December 31, 2014

	(in thousands)				(in thousands)
Derivatives not designated as hedges:
Commodity contracts reported in:
Current derivative assets	$	—	$	120,176	$	—	$	—
Noncurrent derivative assets	—		81,187		—		51,796
Total derivatives not designated as hedges	$	—	$	201,363	$	—	$	51,796

Derivative assets and liabilities shown in the table above are presented as gross assets and liabilities, without regard to master netting arrangements, which are considered in the presentation of derivative assets and liabilities in the accompanying condensed consolidated balance sheets. The change in carrying value of our commodity price derivatives since December 31, 2014 resulted from the termination of all of our derivatives.

Financial instruments not carried at fair value

Carrying values and fair values of financial instruments that are not carried at fair value in the consolidated balance sheets as of September 30, 2015 and December 31, 2014 are included in Note 5.