Derivative Financial Instruments

3 Months Ended

Mar. 31, 2016

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 and foreign exchange forward contracts to manage its exposure to fluctuations in the U.S. and Canadian dollar 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.

As of December 31, 2015, Devon’s other current assets in the accompanying consolidated balance sheet included $236million of accrued settlements that it received in January 2016.

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 generally contain provisions that provide for collateral payments, if Devon or its counterparty’s credit rating falls below certain credit rating levels.

As of March 31, 2016 and December 31, 2015, Devon held $5 million and $75 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, 2016, 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 WTI futures price. The second table presents Devon’s oil derivatives that settle against the respective indices noted within the table.

	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 2016	30,000	$	39.24	73,000	$	33.85	$	41.59	18,500	$	73.18
Q3 2016	-	$	-	37,000	$	40.05	$	45.05	18,500	$	73.18
Q4 2016	-	$	-	-	$	-	$	-	18,500	$	73.18

	Oil Basis Swaps
Period	Index	Volume (Bbls/d)	Weighted Average Differential to WTI ($/Bbl)
Q2-Q4 2016	Western Canadian Select	37,985	$	(13.36)
Q2-Q4 2016	West Texas Sour	5,000	$	(0.53)
Q2-Q4 2016	Midland Sweet	13,000	$	0.25

As of March 31, 2016, 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 respective indices noted within the table.

	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 2016	481,400	$	2.73	4,945	$	1.77	$	2.02	400,000	$	2.80
Q3 2016	-	$	-	-	$	-	$	-	400,000	$	2.80
Q4 2016	-	$	-	-	$	-	$	-	400,000	$	2.80

	Natural Gas Basis Swaps
Period	Index	Volume (MMBtu/d)	Weighted Average Differential to Henry Hub ($/MMBtu)
Q2-Q4 2016	Panhandle Eastern Pipe Line	175,000	$	(0.34)
Q2-Q4 2016	El Paso Natural Gas	125,000	$	(0.12)
Q2-Q4 2016	Houston Ship Channel	30,000	$	0.11
Q2-Q4 2016	Transco Zone 4	70,000	$	0.01
Q1-Q4 2017	Panhandle Eastern Pipe Line	150,000	$	(0.34)
Q1-Q4 2017	El Paso Natural Gas	60,000	$	(0.13)
Q1-Q4 2017	Houston Ship Channel	35,000	$	0.06
Q1-Q4 2017	Transco Zone 4	205,000	$	0.03

As of March 31, 2016,  EnLink had the following open derivative positions associated with gas processing and fractionation. EnLink’s NGL derivative 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 2016-Q4 2016	Ethane	415	MBbls	$	0.29/gal		Index
Q2 2016-Q1 2017	Propane	744	MBbls		Index	$	0.74/gal

Interest Rate Derivatives

    As of March 31, 2016, 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
$	750	Three Month LIBOR	2.98%	December 2048(1)

____________________________

(1) Mandatory settlement in December 2018.

Foreign Currency Derivatives

As of March 31, 2016, 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	$	1,676	0.753	June 2016

Financial Statement Presentation

The following table presents the net gains and losses by derivative financial instrument type followed by the corresponding individual consolidated comprehensive statements of earnings caption.

	Three Months Ended March 31,
	2016		2015
Commodity derivatives:	(Millions)
Oil, gas and NGL derivatives	$	33	$	294
Marketing and midstream revenues		-		2
Interest rate derivatives:
Other nonoperating items		(72)		1
Foreign currency derivatives:
Other nonoperating items		(155)		133
Net gains (losses) recognized	$	(194)	$	430

    The following table presents the derivative fair values by derivative financial instrument type followed by the corresponding individual consolidated balance sheet caption.

	March 31, 2016		December 31, 2015
	(Millions)
Commodity derivative assets:
Derivatives, at fair value	$	53	$	34
Other long-term assets		1		1
Interest rate derivative assets:
Derivatives, at fair value		1		1
Other long-term assets		1		1
Foreign currency derivative assets:
Derivatives, at fair value		-		8
Total derivative assets	$	56	$	45
Commodity derivative liabilities:
Other current liabilities	$	26	$	14
Other long-term liabilities		2		4
Interest rate derivative liabilities:
Other long-term liabilities		95		22
Foreign currency derivative liabilities:
Other current liabilities		26		8
Total derivative liabilities	$	149	$	48