Derivative Financial Instruments

3 Months Ended

Mar. 31, 2015

Derivative Financial Instruments [Abstract]

Derivative Financial Instruments

3.     Derivative Financial Instruments

Objectives and Strategies

Devon periodically enters into derivative financial instruments with respect to a portion of its oil, gas and NGL production to hedge future prices received. Additionally, Devon and EnLink periodically enter into derivative financial instruments with respect to a portion of their oil, gas and NGL marketing activities. These commodity derivative financial instruments include financial price swaps, basis swaps, costless price collars and call options. Devon periodically enters into interest rate swaps to manage its exposure to interest rate volatility. Devon periodically enters into foreign exchange forward contracts to manage its exposure to fluctuations in exchange rates.

Devon does not intend to hold or issue derivative financial instruments for speculative trading purposes and has elected not to designate any of its derivative instruments for hedge accounting treatment.

Counterparty Credit Risk

By using derivative financial instruments, Devon is exposed to credit risk. Credit risk is the failure of the counterparty to perform under the terms of the derivative contract. To mitigate this risk, the hedging instruments are placed with a number of counterparties whom Devon believes are acceptable credit risks. It is Devon’s policy to enter into derivative contracts only with investment-grade rated counterparties deemed by management to be competent and competitive market makers. Additionally, Devon’s derivative contracts contain provisions that provide for collateral payments, depending on levels of exposure and the credit rating of the counterparty.

As of March 31, 2015 and December 31, 2014, Devon held $487 million and $524 million, respectively, of cash collateral which represented the estimated fair value of certain derivative positions in excess of Devon’s credit guidelines. The collateral is reported in other current liabilities in the accompanying consolidated balance sheets.

Commodity Derivatives

As of March 31, 2015, Devon had the following open oil derivative positions. The first table presents Devon’s oil derivatives that settle against the average of the prompt month NYMEX West Texas Intermediate (“WTI”) futures price. The second table presents Devon’s oil derivatives that settle against the Western Canadian Select, West Texas Sour and Midland Sweet indices.

	Price Swaps			Price Collars					Call Options Sold
Period	Volume (Bbls/d)	Weighted Average Price ($/Bbl)		Volume (Bbls/d)	Weighted Average Floor Price ($/Bbl)		Weighted Average Ceiling Price ($/Bbl)		Volume (Bbls/d)	Weighted Average Price ($/Bbl)
Q2-Q4 2015	106,442	$	91.07	31,500	$	89.67	$	97.84	28,000	$	116.43
Q1-Q4 2016	-	$	-	-	$	-	$	-	18,500	$	103.11

	Oil Basis Swaps
Period	Index	Volume (Bbls/d)	Weighted Average Differential to WTI ($/Bbl)
Q2-Q4 2015	Western Canadian Select	36,320	$	(16.35)
Q2-Q4 2015	West Texas Sour	8,000	$	(3.68)
Q2-Q4 2015	Midland Sweet	16,331	$	(2.84)
Q1-Q4 2016	West Texas Sour	1,000	$	(1.50)

As of March 31, 2015, Devon had the following open natural gas derivative positions. The first table presents Devon’s natural gas derivatives that settle against the Inside FERC first of the month Henry Hub index. The second table presents Devon’s natural gas derivatives that settle against the Panhandle Eastern Pipe Line, El Paso Natural Gas and Houston Ship Channel indices.

	Price Swaps			Price Collars					Call Options Sold
Period	Volume (MMBtu/d)	Weighted Average Price ($/MMBtu)		Volume (MMBtu/d)	Weighted Average Floor Price ($/MMBtu)		Weighted Average Ceiling Price ($/MMBtu)		Volume (MMBtu/d)	Weighted Average Price ($/MMBtu)
Q2-Q4 2015	250,000	$	4.32	391,964	$	3.74	$	4.04	550,000	$	5.09
Q1-Q4 2016	-	$	-	-	$	-	$	-	400,000	$	5.00

	Natural Gas Basis Swaps
Period	Index	Volume (MMBtu/d)	Weighted Average Differential to Henry Hub ($/MMBtu)
Q2-Q4 2015	Panhandle Eastern Pipe Line	100,000	$	(0.28)
Q2-Q4 2015	El Paso Natural Gas	70,000	$	(0.11)
Q2-Q4 2015	Houston Ship Channel	200,000	$	0.01
Q1-Q4 2016	Panhandle Eastern Pipe Line	40,000	$	(0.33)
Q1-Q4 2016	El Paso Natural Gas	15,000	$	(0.13)
Q1-Q4 2016	Houston Ship Channel	30,000	$	0.11

    As of March 31, 2015, the following were open derivative positions associated with gas processing and fractionation at EnLink. EnLink’s NGL positions settle by purity product against the average of the prompt month OPIS Mont Belvieu, Texas index.

Period	Product	Volume (Total)			Weighted Average Price Paid		Weighted Average Price Received
Q2 2015-Q4 2016	Ethane	1,113	MBbls	$	0.28/gal		Index
Q2 2015-Q4 2016	Propane	1,170	MBbls		Index	$	0.95/gal
Q2 2015-Q1 2016	Normal Butane	117	MBbls		Index	$	0.78/gal
Q2 2015-Q1 2016	Natural Gasoline	101	MBbls		Index	$	1.32/gal

Interest Rate Derivatives

    As of March 31, 2015, Devon had the following open interest rate derivative positions:

Notional		Rate Received	Rate Paid	Expiration
(Millions)
$	100	Three Month LIBOR	0.92%	December 2016
$	100	1.76%	Three Month LIBOR	January 2019

Foreign Currency Derivatives

As of March 31, 2015, Devon had the following open foreign currency derivative position:

Forward Contract
Currency	Contract Type	CAD Notional		Weighted Average Fixed Rate Received	Expiration
		(Millions)		(CAD-USD)
Canadian Dollar	Sell	$	1,884	0.799	June 2015

Financial Statement Presentation

The following table presents the net gains and losses recognized in the accompanying consolidated comprehensive statements of earnings associated with derivative financial instruments.

	Comprehensive Statements of	Three Months Ended March 31,
	Earnings Caption	2015		2014
		(Millions)
Oil, gas and NGL commodity derivatives	Oil, gas and NGL derivatives	$	294	$	(320)
Midstream commodity derivatives	Marketing and midstream revenues		2		(1)
Interest rate derivatives	Other nonoperating items		1		-
Foreign currency derivatives	Other nonoperating items		133		14
Net gains (losses) recognized in comprehensive statements of earnings		$	430	$	(307)

The following table presents the derivative fair values included in the accompanying consolidated balance sheets.

	Balance Sheet Caption	March 31, 2015		December 31, 2014
		(Millions)
Asset derivatives:
Oil, gas and NGL commodity derivatives	Derivatives, at fair value	$	1,668	$	1,967
Oil, gas and NGL commodity derivatives	Other long-term assets		2		1
Midstream commodity derivatives	Derivatives, at fair value		14		17
Midstream commodity derivatives	Other long-term assets		8		10
Interest rate derivatives	Derivatives, at fair value		2		1
Interest rate derivatives	Other long-term assets		1		-
Foreign currency derivatives	Derivatives, at fair value		22		8
Total asset derivatives		$	1,717	$	2,004
Liability derivatives:
Oil, gas and NGL commodity derivatives	Other current liabilities	$	45	$	25
Oil, gas and NGL commodity derivatives	Other long-term liabilities		7		26
Midstream commodity derivatives	Other current liabilities		3		3
Midstream commodity derivatives	Other long-term liabilities		2		2
Interest rate derivatives	Other current liabilities		1		1
Total liability derivatives		$	58	$	57