(13) Derivatives

Commodity Swaps

We manage our exposure to changes in commodity prices by hedging the impact of market fluctuations. Swaps are used to manage and hedge price and location risk related to these market exposures. Swaps are also used to manage margins on offsetting fixed-price purchase or sale commitments for physical quantities of crude, condensate, natural gas and NGLs. We do not designate transactions as cash flow or fair value hedges for hedge accounting treatment under ASC 815, Derivatives and Hedging. Therefore, changes in the fair value of our derivatives are recorded in revenue in the period incurred. In addition, our risk management policy does not allow us to take speculative positions with our derivative contracts.

We commonly enter into index (float-for-float) or fixed-for-float swaps in order to mitigate our cash flow exposure to fluctuations in the future prices of natural gas, NGLs and crude oil. For natural gas, index swaps are used to protect against the price exposure of daily priced gas versus first-of-month priced gas. They are also used to hedge the basis location price risk resulting from supply and markets being priced on different indices. For natural gas, NGLs, condensate and crude, fixed-for-float swaps are used to protect cash flows against price fluctuations: (1) where we receive a percentage of liquids as a fee for processing third-party gas or where we receive a portion of the proceeds of the sales of natural gas and liquids as a fee, (2) in the natural gas processing and fractionation components of our business and (3) where we are mitigating the price risk for product held in inventory or storage.

The components of gain (loss) on derivative activity in the consolidated statements of operations related to commodity swaps are (in millions):



	Three Months Ended March 31,
	2017			2016
Change in fair value of derivatives	$	5.3		$	(6.0	)
Realized gain (loss) on derivatives	(2.5		)	5.6
Gain (loss) on derivative activity	$	2.8		$	(0.4	)

The fair value of derivative assets and liabilities related to commodity swaps are as follows (in millions):



	March 31, 2017			December 31, 2016
Fair value of derivative assets — current	$	2.1		$	1.3
Fair value of derivative assets — long-term	0.1			—
Fair value of derivative liabilities — current	(2.9		)	(7.6		)
Fair value of derivative liabilities — long-term	(0.3		)	—
Net fair value of derivatives	$	(1.0	)	$	(6.3	)

Assets and liabilities related to our derivative contracts are included in the fair value of derivative assets and liabilities and the change in fair value of these contracts are recorded at net as a gain (loss) on derivative activity in the consolidated statements of operations. We estimate the fair value of all of our derivative contracts using actively-quoted prices.

Set forth below is the summarized notional volumes and fair values of all instruments held for price risk management purposes and related physical offsets at March 31, 2017 (in millions). The remaining term of the contracts extend no later than October 2018.



		March 31, 2017
Commodity	Instruments	Unit	Volume		Fair Value
NGL (short contracts)	Swaps	Gallons	(32.9	)	$	(0.3	)
NGL (long contracts)	Swaps	Gallons	12.8		(0.2		)
Natural Gas (short contracts)	Swaps	MMBtu	(15.4	)	(0.3		)
Natural Gas (long contracts)	Swaps	MMBtu	15.1		(0.4		)
Condensate (short contracts)	Swaps	MMbbls	—		0.1
Condensate (long contracts)	Swaps	MMbbls	—		0.1
Total fair value of derivatives					$	(1.0	)

On all transactions where we are exposed to counterparty risk, we analyze the counterparty’s financial condition prior to entering into an agreement, establish limits and monitor the appropriateness of these limits on an ongoing basis. We primarily deal with two types of counterparties, financial institutions and other energy companies, when entering into financial derivatives on commodities. We have entered into Master International Swaps and Derivatives Association Agreements (“ISDAs”) that allow for netting of swap contract receivables and payables in the event of default by either party. If our counterparties failed to perform under existing swap contracts, our maximum loss of $2.2 million as of March 31, 2017 would be reduced to $0.4 million due to the offsetting of gross fair value payables against gross fair value receivables as allowed by the ISDAs.