Derivative Commodity Instruments

6 Months Ended

Jun. 30, 2016

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Commodity Instruments

DERIVATIVE COMMODITY INSTRUMENTS

We periodically enter into derivative commodity instruments to hedge our exposure to price fluctuations on oil, natural gas liquids and natural gas production. Such instruments may include over-the-counter (OTC) swaps, options and basis swaps typically executed with investment and commercial banks and energy-trading firms. Derivative transactions are pursuant to standing authorizations by the Board of Directors, which do not authorize speculative positions.

The following tables detail the offsetting of derivative assets and liabilities as well as the fair values of derivatives on the balance sheets:

(in thousands)	June 30, 2016
									Gross Amounts Not Offset in the Balance Sheets
	Gross Amounts Recognized at Fair Value			Gross Amounts Offset in the Balance Sheets		Net Amount Presented in the Balance Sheets			Financial Instruments		Cash Collateral Received		Net Fair Value Presented in the Balance Sheets
Derivatives not designated as hedging instruments
Assets
Derivative instruments	$	50		$	3,185	$	3,235		$	—	$	—	$	3,235
Total derivative assets	50			3,185		3,235			—		—		3,235
Liabilities
Derivative instruments	43,267			3,185		46,452			—		—		46,452
Noncurrent derivative instruments	12,875			—		12,875			—		—		12,875
Total derivative liabilities	56,142			3,185		59,327			—		—		59,327
Total derivatives	$	(56,092	)	$	—	$	(56,092	)	$	—	$	—	$	(56,092	)

(in thousands)	December 31, 2015
								Gross Amounts Not Offset in the Balance Sheets
	Gross Amounts Recognized at Fair Value		Gross Amounts Offset in the Balance Sheets			Net Amount Presented in the Balance Sheets		Financial Instruments		Cash Collateral Received		Net Fair Value Presented in the Balance Sheets
Derivatives not designated as hedging instruments *
Assets
Derivative instruments	$	72,563	$	(15,600	)	$	56,963	$	—	$	—	$	56,963
Liabilities
Derivative instruments	16,059		(15,600		)	459		—		—		459
Total derivatives	$	56,504	$	—		$	56,504	$	—	$	—	$	56,504

*All derivative instruments were current at December 31, 2015.

Due to the volatility of commodity prices, the estimated fair value of our derivative instruments is subject to fluctuation from period to period, which could result in significant differences between the current estimated fair value and the ultimate settlement price. Additionally, Energen is at risk of economic loss based upon the creditworthiness of our counterparties. We were in a net loss position with thirteen of our active counterparties and in a net gain position with the remaining two at June 30, 2016. The counterparty net gain positions at June 30, 2016, Morgan Stanley Capital Group Inc. and BP Corporation North America Inc., constituted approximately $1.4 million and $0.9 million, respectively, of Energen’s total net loss on fair value of derivatives.

The following table details the effect of open and closed derivative commodity instruments not designated as hedging instruments on the income statement:

(in thousands)	Location on Statements of Income	Three months ended June 30, 2016			Three months ended June 30, 2015
Loss recognized in income on derivatives	Loss on derivative instruments, net	$	(65,872	)	$	(50,964	)

(in thousands)	Location on Statements of Income	Six months ended June 30, 2016			Six months ended June 30, 2015
Loss recognized in income on derivatives	Loss on derivative instruments, net	$	(60,417	)	(16,928	)

As of June 30, 2016, Energen had entered into the following transactions for the remainder of 2016 and subsequent years:

Production Period	Description	Total Hedged Volumes		Average Contract Price
Oil
2016	NYMEX Swaps	4,384 MBbl		$44.72 Bbl
2017	NYMEX Swaps	4,080 MBbl		$47.97 Bbl
	NYMEX Three-Way Collars	4,080 MBbl
	Ceiling sold price (call)			$62.25 Bbl
	Floor purchased price (put)			$45.00 Bbl
	Floor sold price (put)			$35.00 Bbl
Oil Basis Differential
2016	WTI/WTI Basis Swaps	3,762	MBbl	$(1.92) Bbl
2016	WTS/WTI Basis Swaps	1,039	MBbl	$(1.64) Bbl
Natural Gas
2016	Basin Specific Swaps - Permian	3.6	Bcf	$2.30 Mcf
2017	Basin Specific Swaps - Permian	13.2	Bcf	$2.85 Mcf
WTI - West Texas Intermediate/Midland, WTI - West Texas Intermediate/Cushing
WTS - West Texas Sour/Midland, WTI - West Texas Intermediate/Cushing

During 2016, Energen entered into three-way collars which are a combination of three options: a sold call, a purchased put and a sold put. The sold call establishes the maximum price that the Company will receive for the contracted commodity volumes. The purchased put establishes the minimum price that the Company will receive for the contracted volumes. The Company will receive the market price for the contracted volumes if the market price is between the sold call and the purchased put. If, however, the market price for the commodity falls below the sold put strike price, the minimum price that the Company will receive for the contracted volumes equals the market price plus the excess of the purchased put strike price over the sold put strike price.

As of June 30, 2016, the maximum term over which Energen has hedged exposures to the variability of cash flows is through December 31, 2017.