Derivative Activities

3 Months Ended

Mar. 31, 2017

Derivative Instruments And Hedging Activities Disclosure [Abstract]

Derivative Activities

(12) DERIVATIVE ACTIVITIES

We use commodity-based derivative contracts to manage exposure to commodity price fluctuations. We do not enter into these arrangements for speculative or trading purposes. We typically do not utilize complex derivatives, as we utilize commodity swaps or options to (1) reduce the effect of price volatility of the commodities we produce and sell and (2) support our annual capital budget and expenditure plans. The fair value of our derivative contracts, represented by the estimated amount that would be realized upon termination, based on a comparison of the contract price and a reference price, generally the New York Mercantile Exchange (“NYMEX”) for natural gas and crude oil or Mont Belvieu for NGLs, approximated a net asset of $8.8 million at March 31, 2017. These contracts expire monthly through December 2019. The following table sets forth our commodity-based derivative volumes by year as of March 31, 2017, excluding our basis and freight swaps which are discussed separately below:

Period	Contract Type	Volume Hedged	Weighted Average Hedge Price
Natural Gas
2017	Swaps (1)	844,245 Mmbtu/day	$ 3.19
2018	Swaps	417,260 Mmbtu/day	$ 3.25
2017	Collars (1)	123,818 Mmbtu/day	$ 3.46–$ 4.12
2018	Collars	7,397 Mmbtu/day	$ 3.40–$ 3.75
2017	Purchased Puts (1)	178,909 Mmbtu/day	$ 3.49 (2)
2017	Sold Calls	9,041 Mmbtu/day	$ 3.75 (3)
Crude Oil
2017	Swaps (1)	8,782 bbls/day	$ 56.00
2018	Swaps	3,500 bbls/day	$ 53.81
2019	Swaps	250 bbls/day	$ 51.00
NGLs (C2-Ethane)
2017	Swaps	3,000 bbls/day	$ 0.27/gallon
2018	Swaps	124 bbls/day	$ 0.29/gallon
NGLs (C3-Propane)
2017	Swaps	13,895 bbls/day	$ 0.57/gallon
2018	Swaps	7,199 bbls/day	$0.65/gallon
NGLs (NC4-Normal Butane)
2017	Swaps	7,750 bbls/day	$ 0.74/gallon
2018	Swaps	4,250 bbls/day	$ 0.81/gallon
NGLs (C5-Natural Gasoline)
2017	Swaps	5,250 bbls/day	$ 1.06/gallon
2018	Swaps	1,500 bbls/day	$ 1.19/gallon

⁽¹⁾ Includes derivative instruments assumed in connection with the MRD Merger.

⁽²⁾ Weighted average deferred premium is ($0.32).

⁽³⁾ Weighted average deferred premium is $0.31.

Every derivative instrument is required to be recorded on the balance sheet as either an asset or a liability measured at its fair value. If the derivative does not qualify as a hedge or is not designated as a hedge, changes in fair value of these non-hedge derivatives are recognized in earnings as derivative fair value income or loss.

Basis Swap Contracts

In addition to the swaps above, at March 31, 2017, we had natural gas basis swap contracts which lock in the differential between NYMEX and certain of our physical pricing indices primarily in Appalachia. These contracts settle monthly through October 2018 and include a total volume of 68,830,000 Mmbtu. The fair value of these contracts was a loss of $20.4 million on March 31, 2017.

At March 31, 2017, we also had propane spread swap contracts which lock in the differential between Mont Belvieu and international propane indices. The contracts settle monthly through December 2018 and include a total volume of 1,641,000 barrels in 2017 and 750,000 barrels in 2018. The fair value of these contracts was a gain of $491,000 on March 31, 2017.

Freight Swap Contracts

In connection with our international propane spread swaps, at March 31, 2017, we had freight swap contracts which lock in the freight rate for a specific trade route on the Baltic Exchange. These contracts settle monthly in fourth quarter 2017 through December 2018 and cover 5,000 metric tons per month with a fair value gain of $116,000 on March 31, 2017.

Derivative Assets and Liabilities

The combined fair value of derivatives included in the accompanying consolidated balance sheets as of March 31, 2017 and December 31, 2016 is summarized below. The assets and liabilities are netted where derivatives with both gain and loss positions are held by a single counterparty and we have master netting arrangements. The tables below provide additional information relating to our master netting arrangements with our derivative counterparties (in thousands):

		March 31, 2017
		Gross Amounts of Recognized Assets		Gross Amounts Offset in the Balance Sheet			Net Amounts of Assets Presented in the Balance Sheet
Derivative assets:
Natural gas	–swaps	$	28,756	$	(19,019	)	$	9,737
	–basis swaps		905		(3,330	)		(2,425	)
	–collars		9,650		(1,435	)		8,215
	–puts		19,563		(4,609	)		14,954
	–calls		—		(531	)		(531	)
Crude oil	–swaps		14,026		(1,532	)		12,494
NGLs	–C2 ethane swaps		507		(251	)		256
	–C3 propane swaps		4,531		(4,892	)		(361	)
	–C3 propane spread swaps		11,812		(11,812	)		—
	–NC4 butane swaps		6,970		(3,258	)		3,712
	–C5 natural gasoline swaps		2,405		(2,211	)		194
Freight	–swaps		116		(116	)		—
		$	99,241	$	(52,996	)	$	46,245

		March 31, 2017
		Gross Amounts of  Recognized (Liabilities)			Gross Amounts Offset in the Balance Sheet		Net Amounts of (Liabilities) Presented in the Balance Sheet
Derivative liabilities:
Natural gas	–swaps	$	(55,204	)	$	19,019	$	(36,185	)
	–basis swaps		(21,287	)		3,330		(17,957	)
	–collars		—			1,435		1,435
	–puts		—			4,609		4,609
	–calls		(531	)		531		—
Crude oil	–swaps		(1,308	)		1,532		224
NGLs	–C2 ethane swaps		(137	)		251		114
	–C3 propane swaps		(12,164	)		4,892		(7,272	)
	–C3 propane spread swaps		(11,321	)		11,812		491
	–NC4 butane swaps		(3,395	)		3,258		(137	)
	–C5 natural gasoline swaps		(4,877	)		2,211		(2,666	)
Freight	–swaps		—			116		116
		$	(110,224	)	$	52,996	$	(57,228	)

		December 31, 2016
		Gross Amounts of Recognized Assets		Gross Amounts Offset in the Balance Sheet			Net Amounts of Assets Presented in the Balance Sheet
Derivative assets:
Natural gas	–swaps	$	13,213	$	(11,425	)	$	1,788
	–basis swaps		12,535		(9,437	)		3,098
	–collars		6,298		(6,298	)		—
	–puts		18,159		(15,429	)		2,730
Crude oil	–swaps		9,356		(3,489	)		5,867
NGLs	–C2 ethane swaps		53		(53	)		—
	–C3 propane spread swaps		17,396		(17,396	)		—
	–NC4 butane swaps		4		(4	)		—
Freight	–swaps		65		(65	)		—
		$	77,079	$	(63,596	)	$	13,483

		December 31, 2016
		Gross Amounts of  Recognized (Liabilities)			Gross Amounts Offset in the Balance Sheet		Net Amounts of (Liabilities) Presented in the Balance Sheet
Derivative liabilities:
Natural gas	–swaps	$	(158,359	)	$	11,425	$	(146,934	)
	–basis swaps		(687	)		9,437		8,750
	–collars		(2,625	)		6,298		3,673
	–puts		—			15,429		15,429
	–calls		(1,041	)		—		(1,041	)
Crude oil	–swaps		(13,206	)		3,489		(9,717	)
NGLs	–C2 ethane swaps		(1,008	)		53		(955	)
	–C3 propane swaps		(32,437	)		—		(32,437	)
	–C3 propane spread swaps		(18,138	)		17,396		(742	)
	–NC4 butane swaps		(13,419	)		4		(13,415	)
	–C5 natural gasoline swaps		(12,176	)		—		(12,176	)
Freight	–swaps		—			65		65
		$	(253,096	)	$	63,596	$	(189,500	)

The effects of our derivatives on our consolidated statements of operations are summarized below (in thousands):

		Three Months Ended March 31,
		Derivative Fair Value Income (Loss)
		2017			2016
Commodity swaps	$	166,752		$	79,644
Collars		9,475			—
Puts		6,707			—
Calls		510			—
Basis swaps		(17,972	)		7,275
Freight swaps		85			(11	)
Total	$	165,557		$	86,908