Note 5—Derivative Instruments

Commodity derivatives

The Company is exposed to market risk from changes in energy commodity prices within its operations. The Company utilizes derivatives to manage exposure to the variability in expected future cash flows from forecasted sales of natural gas and oil. The Company currently uses a mix of over-the-counter fixed price swaps, basis swaps and put options spreads and collars to manage its exposure to commodity price fluctuations. All of the Company’s derivative instruments are used for risk management purposes and none are held for trading or speculative purposes.

The Company is exposed to credit risk in the event of non-performance by counterparties. To mitigate this risk, the Company enters into derivative contracts only with counterparties that are rated “A” or higher by S&P or Moody’s. The creditworthiness of counterparties is subject to periodic review. As of December 31, 2017, the Company’s derivative instruments were with Bank of Montreal, Citibank, KeyBank, N.A, Morgan Stanley, Capital One N.A., BP Energy Company and Goldman Sachs. The Company has not experienced any issues of non-performance by derivative counterparties. Below is a summary of the Company’s derivative instrument positions, as of December 31, 2017, for future production periods:

Natural Gas Derivatives

Description	Volume (MMBtu/d)		Production Period	Weighted Average Price ($/MMBtu)
Natural Gas Swaps:
		30,000	January 2018 – March 2018	$	3.46
Natural Gas Three-way Collars:
Floor purchase price (put)		30,000	January 2018 – March 2019	$	3.00
Ceiling sold price (call)		30,000	January 2018 – March 2019	$	3.40
Floor sold price (put)		30,000	January 2018 – March 2019	$	2.50
Floor purchase price (put)		40,000	January 2018 – March 2018	$	2.90
Floor purchase price (put)		40,000	April 2018 – December 2018	$	3.11
Ceiling sold price (call)		40,000	January 2018 – December 2018	$	3.38
Floor sold price (put)		40,000	January 2018 – December 2018	$	2.50
Floor purchase price (put)		60,000	January 2018 – March 2018	$	2.90
Ceiling sold price (call)		60,000	January 2018 – March 2018	$	3.75
Floor sold price (put)		60,000	January 2018 – March 2018	$	2.50
Floor purchase price (put)		60,000	January 2018 – December 2018	$	2.80
Ceiling sold price (call)		60,000	January 2018 – December 2018	$	3.35
Floor sold price (put)		60,000	January 2018 – December 2018	$	2.50
Natural Gas Call/Put Options:
Call sold		40,000	January 2018 – December 2018	$	3.75
Call sold		10,000	January 2019 – December 2019	$	4.75
Basis Swaps:
Appalachia - Dominion		60,000	January 2018 – March 2018	$	(0.44	)
Appalachia - Dominion		12,500	April 2019 – October 2019	$	(0.52	)
Appalachia - Dominion		12,500	April 2020 – October 2020	$	(0.52	)

Oil Derivatives

Description	Volume (Bbls/d)		Production Period	Weighted Average Price ($/Bbl)
Oil Three-way Collars:
Floor purchase price (put)		4,000	January 2018 – December 2018	$	45.00
Ceiling sold price (call)		4,000	January 2018 – December 2018	$	52.25
Floor sold price (put)		4,000	January 2018 – December 2018	$	35.00

Fair values and gains (losses)

The following table summarizes the fair value of the Company’s derivative instruments on a gross basis and on a net basis as presented in the consolidated balance sheets (in thousands). None of the derivative instruments are designated as hedges for accounting purposes.

As of December 31, 2017	Gross Amount			Netting Adjustments(a)			Net Amount Presented in Balance Sheets			Balance Sheet Location
Assets
Commodity derivatives - current	$	15,971		$	(6,380	)	$	9,591		Other current assets
Commodity derivatives - noncurrent		469			(176	)		293		Other assets
Total assets	$	16,440		$	(6,556	)	$	9,884

Liabilities
Commodity derivatives - current	$	(21,256	)	$	6,380		$	(14,876	)	Accrued liabilities
Commodity derivatives - noncurrent		(252	)		176			(76	)	Other liabilities
Total liabilities	$	(21,508	)	$	6,556		$	(14,952	)

As of December 31, 2016	Gross Amount			Netting Adjustments(a)			Net Amount Presented in Balance Sheets			Balance Sheet Location
Assets
Commodity derivatives - current	$	50		$	(50	)	$	—
Commodity derivatives - noncurrent		—			—			—
Total assets	$	50		$	(50	)	$	—

Liabilities
Commodity derivatives - current	$	(35,459	)	$	50		$	(35,409	)	Accrued liabilities
Commodity derivatives - noncurrent		(12,673	)		—			(12,673	)	Other liabilities
Total liabilities	$	(48,132	)	$	50		$	(48,082	)

(a)	The Company has agreements in place that allow for the financial right to offset for derivative assets and derivative liabilities at settlement or in the event of a default under the agreements.

The following table presents the Company’s reported gains and losses on derivative instruments and where such values are recorded in the consolidated statements of operations for the periods presented (in thousands):

		Years Ended December 31,
	Location of Gain (Loss)	2017		2016			2015
Commodity derivatives	Gain (loss) on derivative instruments	$	45,365	$	(52,338	)	$	56,021