Financial Instruments

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



	September 30, 2015				December 31, 2014
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
	(in millions)
Long-term debt	$	4,931	$	4,374	$	4,598	$	4,582

Derivative instruments	$	852	$	852	$	1,048	$	1,048

As of September 30, 2015 and December 31, 2014, 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.

Oil, Natural Gas and NGLs 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 through the use of financial derivatives. As of September 30, 2015 and December 31, 2014, we had fixed price derivative contracts for 29 MMBbls and 37 MMBbls of oil and 23 TBtu and 69 TBtu of natural gas, respectively. In addition, we have derivative contracts related to locational basis differences and/or timing of physical settlement prices. As of September 30, 2015, we also had derivative contracts on 27 MMGal of propane. None of these contracts are designated as accounting hedges.

The following table reflects the volumes associated with derivative contracts entered into between October 1, 2015 and October 27, 2015.



		2017 Volumes
Oil (MBbls)
Basis Swaps
LLS vs. Brent⁽¹⁾		365


(1)	EP Energy receives Brent plus the basis spread and pays LLS.

Interest Rate Derivative Instruments. We have interest rate swaps with a notional amount of $600 million that extend through April 2017 and are intended to reduce variable interest rate risk. As of September 30, 2015, we had a net liability of $2 million and as of December 31, 2014, we had a net asset of $3 million related to interest rate derivative instruments included in our consolidated balance sheets. For the quarters ended September 30, 2015 and 2014, we recorded $2 million of interest expense and $2 million of interest income, respectively, related to the change in fair market value and cash settlements of our interest rate derivative instruments. For the nine months ended September 30, 2015 and 2014, we recorded $7 million and $2 million of interest expense, respectively, 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. As of September 30, 2015 and December 31, 2014, all derivative financial instruments were classified as Level 2. Our assessment of the level of an instrument can change over time based on the maturity or liquidity of the instrument.

Financial Statement Presentation. The following table presents the fair value associated with our derivative financial instruments as of September 30, 2015 and December 31, 2014. 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 Fair Value					Balance Sheet Location				Gross Fair Value					Balance Sheet Location
	Gross Fair Value		Impact of Netting			Current		Non- current		Gross Fair Value			Impact of Netting		Current			Non- current
	(in millions)									(in millions)
September 30, 2015
Derivative instruments	$	874	$	(21	)	$	672	$	181	$	(22	)	$	21	$	(1	)	$	—

December 31, 2014
Derivative instruments	$	1,093	$	(44	)	$	752	$	297	$	(45	)	$	44	$	(1	)	$	—

For the quarters ended September 30, 2015 and 2014, we recorded derivative gains of $434 million and $381 million, respectively, on our financial oil, natural gas and NGLs derivative instruments. For the nine months ended September 30, 2015 and 2014, we recorded a derivative gain of $458 million and a derivative loss of $44 million, respectively. Derivative gains and losses on our oil, natural gas and NGLs financial derivative instruments are recorded in operating revenues in our consolidated income statement.