5. Financial Instruments

The following table presents the carrying amounts and estimated fair values of the financial instruments:

	December 31, 2013				December 31, 2012
	Carrying				Carrying
	Amount		Fair Value		Amount		Fair Value
	(in millions)
Long-term debt	$	4,039	$	4,451	$	4,346	$	4,690

Derivative instruments	$	109	$	109	$	165	$	165

For the years ended December 31, 2013 and 2012, the carrying amount of cash and cash equivalents, accounts receivable and accounts payable represent fair value because of the short-term nature of these instruments. We hold long term debt obligations (see Note 7) with various terms. We estimated the fair value of debt (representing a Level 2 fair value measurement) primarily based on quoted market prices for the same or similar issuances, including consideration of our credit risk related to these instruments.

Oil and Natural Gas Derivative Instruments. We attempt to mitigate a portion of our commodity price risk and stabilize cash flows associated with forecasted sales of oil and natural gas production through the use of oil and natural gas swaps, basis swaps and option contracts. As of December 31, 2013 and 2012, we had total derivative contracts of 47 MMBbls and 34 MMBbls of oil and 135 TBtu and 276 TBtu of natural gas, respectively. None of these contracts are designated as accounting hedges.

The following table reflects the volumes associated with derivative contracts entered into between January 1, 2014 and February 24, 2014.

	2014	2015	2016
	Volumes(1)	Volumes(1)	Volumes(1)
Oil (MBbls)
Fixed Price Swaps
Brent	160	2,555	4,026
LLS(1)	—	—	2,562
Basis Swaps	1,557	—	183
Natural Gas (TBtu)
Fixed Price Swaps	—	4	—
NGLs (MMGal)
Propane Fixed Price Swaps	28	—	—
Propane Collars
Ceilings	14	—	—
Floors	14	—	—

(1) In January 2014, we unwound 2,555 MBbls of 2015 WTI fixed price swaps in exchange for 2,562 MBbls of 2016 LLS fixed price swaps. No cash or other considerations was included as part of this exchange.

Interest Rate Derivative Instruments. In 2012, we entered into interest rate swaps with a notional amount of $600 million that are intended to reduce variable interest rate risk. These interest rate derivative instruments started in November 2012 and extend through April 2017. As of December 31, 2013 and 2012, we had a net asset of $4 million and a net liability of $2 million, respectively, related to interest rate derivative instruments listed in our consolidated balance sheet. For the year ended December 31, 2013 and the period from March 23 to December 31, 2012 we recorded income of $3 million and expense of $3 million, respectively, in interest expense related to the change in fair market value and cash settlements of our interest rate derivative instruments.

Fair Value Measurements. We use various methods to determine the fair values of our financial instruments. The fair value of a financial instrument depends on a number of factors, including the availability of observable market data over the contractual term of the underlying instrument. We separate the fair value of our financial instruments into three levels (Levels 1, 2 and 3) based on our assessment of the availability of observable market data and the significance of non-observable data used to determine fair value. Each of the levels are described below:

· Level 1 instruments’ fair values are based on quoted prices in actively traded markets.

· Level 2 instruments’ fair values are based on pricing data representative of quoted prices for similar assets and liabilities in active markets (or identical assets and liabilities in less active markets).

· Level 3 instruments’ fair values are partially calculated using pricing data that is similar to Level 2 instruments, but also reflect adjustments for being in less liquid markets or having longer contractual terms.

As of December 31, 2013 and 2012, all financial instruments were classified as Level 2. Our assessment of an instrument within a level can change over time based on the maturity or liquidity of the instrument, which could result in a change in the classification of our financial instruments between other levels.

Financial Statement Presentation. The following table presents the fair value associated with derivative financial instruments as of December 31, 2013 and 2012. All of our derivative instruments are subject to master netting arrangements which provide for the unconditional right of offset for all derivative assets and liabilities with a given counterparty in the event of default. We present assets and liabilities related to these instruments in our balance sheets as either current or non-current assets or liabilities based on their anticipated settlement date, net of the impact of master netting agreements. On derivative contracts recorded as assets in the table below, we are exposed to the risk that our counterparties may not perform.

	Level 2
	Derivative Assets									Derivative Liabilities
	Gross(1)					Balance Sheet Location				Gross(1)					Balance Sheet Location
	Fair Value		Impact of Netting			Current		Non- current		Fair Value			Impact of Netting		Current			Non-current
	(in millions)									(in millions)
December 31, 2013
Derivatives	$	164	$	(20	)	$	47	$	97	$	(55	)	$	20	$	(35	)	$	—

December 31, 2012
Derivatives	$	235	$	(39	)	$	108	$	88	$	(70	)	$	39	$	(17	)	$	(14	)

(1) Gross derivative assets are comprised primarily of $157 million and $231 million of oil and natural gas derivatives and $7 million and $4 million of interest rate derivatives as of December 31, 2013 and December 31, 2012, respectively. Gross derivative liabilities are comprised primarily of $52 million and $64 million of oil and natural gas derivatives and $3 million and $6 million of interest rate derivatives as of December 31, 2013 and December 31, 2012, respectively.

The following table presents gains and losses on financial oil and natural gas derivative instruments presented in operating revenues and dedesignated cash flow hedges of the predecessor included in accumulated other comprehensive income (in millions):

	Successor						Predecessor
	Year ended December 31,			March 23 (inception) to December 31,			January 1 to May 24,		Year ended December 31,
	2013			2012			2012		2011

(Losses) gains on financial derivative instruments	$	(52	)	$	(62	)	$	365	$	284
Accumulated other comprehensive income	—			—			5		11

Credit Risk. We are subject to the risk of loss on our financial instruments that we would incur as a result of non-performance by counterparties pursuant to the terms of their contractual obligations. We maintain credit policies with regard to our counterparties to minimize our overall credit risk. These policies require (i) the evaluation of potential counterparties’ financial condition to determine their credit worthiness; (ii) the daily monitoring of our oil, natural gas and NGLs counterparties’ credit exposures; (iii) comprehensive credit reviews on significant counterparties from physical and financial transactions on an ongoing basis; (iv) the utilization of contractual language that affords us netting or set off opportunities to mitigate exposure risk; and (v) when appropriate requiring counterparties to post cash collateral, parent guarantees or letters of credit to minimize credit risk. Our assets related to derivatives as of December 31, 2013 represent derivative instruments from twelve counterparties; all of which are financial institutions that have an “investment grade” (minimum Standard & Poor’s rating of A- or better) credit rating and are lenders associated with our $2.5 billion RBL credit facility. Subject to the terms of our $2.5 billion RBL credit facility, collateral or other securities are not exchanged in relation to derivatives activities with the parties in the RBL Facility.