NOTE 8 DERIVATIVES

General

We use a variety of derivative instruments to protect our cash flows, margins and capital investment program from the cyclical nature of commodity prices and to improve our ability to comply with the covenants of our Credit Facilities in case of price deterioration. We will continue to be strategic and opportunistic in implementing our hedging program as market conditions permit. Derivatives are carried at fair value and on a net basis when a legal right of offset exists with the same counterparty.

As of September 30, 2017, we did not have any derivatives designated as hedges. Unless otherwise indicated, we use the term “hedge” to describe derivative instruments that are designed to achieve our hedging program goals, even though they are not necessarily accounted for as cash-flow or fair-value hedges. As part of our hedging program, we entered into a number of derivative transactions that resulted in the following Brent-based crude oil contracts as of September 30, 2017:

	Q4 2017		Q1 2018		Q2 2018		Q3 2018		Q4 2018		FY 2019		FY 2020

Sold Calls:
Barrels per day	6,300		16,800		16,200		16,100		16,100		1,000		900
Weighted-average price per barrel	$	57.80	$	58.86	$	58.92	$	58.91	$	58.91	$	60.00	$	60.00

Purchased Puts:
Barrels per day	11,300		1,200		1,200		1,100		1,100		1,000		900
Weighted-average price per barrel	$	47.75	$	45.82	$	45.83	$	45.83	$	45.85	$	45.84	$	43.91

Sold Puts:
Barrels per day	—		29,000		29,000		19,000		19,000		—		—
Weighted-average price per barrel	$	—	$	45.00	$	45.00	$	45.00	$	45.00	$	—	$	—

Swaps:
Barrels per day	30,000		29,000		29,000		19,000		19,000		—		—
Weighted-average price per barrel	$	55.00	$	60.00	$	60.00	$	60.13	$	60.13	$	—	$	—

A small portion of the derivatives in the table above were entered into by our BSP JV, including all of the 2019 and 2020 positions. Our BSP JV also entered into natural gas swaps for insignificant volumes for the period of October 2017 to July 2020.

For purchased puts, we would receive settlement payments for prices below the indicated weighted-average price per barrel. For sold puts, we would make settlement payments for prices below the indicated weighted-average price per barrel. From time to time, we use puts in conjunction with other derivatives to increase the efficacy of our hedging activities.

Certain of our counterparties have options to increase swap volumes by up to:

5,000 barrels per day at a weighted-average Brent price of $55.03 for December 2017;

19,000 barrels per day at a weighted-average Brent price of $60.00 for each quarter of the first half of 2018;

19,000 barrels per day at a weighted-average Brent price of $60.13 for each quarter of the second half of 2018;

10,000 barrels per day at a weighted-average Brent price of $60.00 for the first half of 2018 and

5,000 barrels per day at a weighted-average Brent price of $60.15 for the second half of 2018.

Additional hedges for 2018 were put in place after September 30, 2017 that are not included in the table above.

Fair Value of Derivatives

Our commodity derivatives are measured at fair value using industry-standard models with various inputs, including quoted forward prices, and are all classified as Level 2 in the required fair value hierarchy for the periods presented. The following table presents the fair values (at gross and net) of our outstanding derivatives as of September 30, 2017 and December 31, 2016 (in millions):

	September 30, 2017
	Balance Sheet Classification	Gross Amounts Recognized at Fair Value		Gross Amounts Offset in the Balance Sheet		Net Fair Value Presented in the Balance Sheet
Assets
Commodity Contracts	Other current assets	$	52	$	(6)	$	46
Commodity Contracts	Other assets	13		—		13

Liabilities
Commodity Contracts	Accrued liabilities	(66)		6		(60)
Commodity Contracts	Other long-term liabilities	(19)		—		(19)

Total derivatives		$	(20)	$	—	$	(20)

	December 31, 2016
	Balance Sheet Classification	Gross Amounts Recognized at Fair Value		Gross Amounts Offset in the Balance Sheet		Net Fair Value Presented in the Balance Sheet
Assets
Commodity Contracts	Other current assets	$	88	$	(49)	$	39
Commodity Contracts	Other assets	25		(6)		19

Liabilities
Commodity Contracts	Accrued liabilities	(152)		49		(103)
Commodity Contracts	Other long-term liabilities	(58)		6		(52)

Total derivatives		$	(97)	$	—	$	(97)