Derivative Commodity Instruments

9 Months Ended

Sep. 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. These derivative commodity instruments are accounted for as mark-to-market transactions with gains or losses recognized in the period of change in gain (loss) on derivative instruments, net. 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)	September 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	$	8,308		$	(4,655	)	$	3,653		$	—	$	—	$	3,653
Noncurrent derivative instruments	170			(170		)	—			—		—		—
Total derivative assets	8,478			(4,825		)	3,653			—		—		3,653
Liabilities
Derivative instruments	29,564			(4,655		)	24,909			—		—		24,909
Noncurrent derivative instruments	6,213			(170		)	6,043			—		—		6,043
Total derivative liabilities	35,777			(4,825		)	30,952			—		—		30,952
Total derivatives	$	(27,299	)	$	—		$	(27,299	)	$	—	$	—	$	(27,299	)

(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 eleven of our active counterparties and in a net gain position with the remaining four at September 30, 2016. The significant counterparty net gain positions at September 30, 2016, Morgan Stanley Capital Group Inc. and BP Corporation North America Inc., constituted approximately $2.0 million and $1.0 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 September 30, 2016		Three months ended September 30, 2015
Gain recognized in income on derivatives	Gain (loss) on derivative instruments, net	$	20,412	$	107,173

(in thousands)	Location on Statements of Income	Nine months ended September 30, 2016			Nine months ended September 30, 2015
Gain (loss) recognized in income on derivatives	Gain (loss) on derivative instruments, net	$	(40,005	)	90,245

As of September 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	2,282 MBbl		$45.23 Bbl
2017	NYMEX Swaps	4,080 MBbl		$47.97 Bbl
	NYMEX Three-Way Collars	4,440 MBbl
	Ceiling sold price (call)			$62.11 Bbl
	Floor purchased price (put)			$45.00 Bbl
	Floor sold price (put)			$35.00 Bbl
Oil Basis Differential
2016	WTI/WTI Basis Swaps	1,881	MBbl	$(1.92) Bbl
2016	WTS/WTI Basis Swaps	514	MBbl	$(1.64) Bbl
Natural Gas Liquids
2017	Liquids Swaps	45.4	MMGal	$0.52 Gal
Natural Gas
2016	Basin Specific Swaps - Permian	1.8	Bcf	$2.30 Mcf
2017	Basin Specific Swaps - Permian	14.7	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 September 30, 2016, the maximum term over which Energen has hedged exposures to the variability of cash flows is through December 31, 2017.