(11) 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 utilize commodity swaps, collars, calls or swaptions 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 loss of $104.8 million at September 30, 2018. These contracts expire monthly through December 2020. The following table sets forth our commodity-based derivative volumes by year as of September 30, 2018, excluding our basis and freight swaps which are discussed separately below:

Period	Contract Type	Volume Hedged	Weighted Average Hedge Price
Natural Gas
2018	Swaps	1,193,370 Mmbtu/day		$ 2.96
2019	Swaps	594,589 Mmbtu/day		$ 2.82
2018	Calls	70,000 Mmbtu/day		$ 3.10 ⁽¹⁾
2018	Swaptions	160,000 Mmbtu/day		$ 3.07 ⁽²⁾
2019	Swaptions	298,014 Mmbtu/day		$ 2.86 ⁽²⁾
2020	Swaptions	10,000 Mmbtu/day		$ 2.75 ⁽²⁾

Crude Oil
2018	Swaps	8,500 bbls/day		$ 53.20
2019	Swaps	7,000 bbls/day		$ 55.26
2020	Swaps	1,500 bbls/day		$ 60.63
2019	Collars	1,000 bbls/day		$ 63.00 − $ 73.03

NGLs (C3-Propane)
2018	Swaps	11,668 bbls/day		$ 0.74/gallon
January – June 2019	Swaps	7,500 bbls/day		$ 0.92/gallon
2018	Collars	5,000 bbls/day		$ 0.95 − $ 1.04
January – March 2019	Collars	6,500 bbls/day		$ 0.92 − $1.02

NGLs (NC4-Normal Butane)
2018	Swaps	5,500 bbls/day		$ 0.91/gallon
January – March 2019	Swaps	2,250 bbls/day		$ 1.22/gallon

NGLs (C5-Natural Gasoline)
2018	Swaps	5,402 bbls/day		$ 1.24/gallon
2019	Swaps	2,178 bbls/day		$ 1.42/gallon

⁽¹⁾	Weightedaverage deferred premium of $0.16.

⁽²⁾

Contains a combined derivative instrument consisting of a fixed price swap and a sold option to extend or double the volume. For October through December of 2018, we have swaps in place for 160,000 Mmbtu per day on which the counterparty can elect to extend the contract through December 2019 at a weighted average price of $3.07. We have swaps in place for 2019 for 185,000 Mmbtu/day on which the counterparty can elect to double the volume at a weighted average price of $2.89. We also have swaps in place for 2019 for 150,000 Mmbtu per day on which the counterparty can elect to extend the contract through December 2020 at a weighted average price of $2.81. For 2020, we have swaps in place for 10,000 Mmbtu/day on which the counterparty can elect to double the volume at a weighted average price of $2.75.

Every derivative instrument is required to be recorded on the balance sheet as either an asset or a liability measured at its fair value. We recognize all changes in fair value of these derivatives as earnings in derivative fair value income or loss in the periods in which they occur.

Basis Swap Contracts

In addition to the swaps, collars, calls and swaptions described above, at September 30, 2018, we had natural gas basis swap contracts which lock in the differential between NYMEX Henry Hub and certain of our physical pricing indices. These contracts settle monthly through September 2021 and include a total volume of 73,660,000 Mmbtu. The fair value of these contracts was a loss of $1.3 million at September 30, 2018.

At September 30, 2018, 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 2019 and include a total volume of 1,943,000 barrels. The fair value of these contracts was a loss of $2.0 million at September 30, 2018.

Freight Swap Contracts

In connection with our international propane sales, we utilize propane swaps. To further hedge our propane price, at September 30, 2018, we had freight swap contracts on the Baltic Exchange which lock in the freight rate for a specific trade route. These contracts settle monthly through December 2019 and cover 5,000 metric tons per month with a fair value gain of $301,000 at September 30, 2018. These contracts use observable third-party pricing inputs that we consider to be Level 2 fair value classification.

Derivative Assets and Liabilities

The combined fair value of derivatives included in the accompanying consolidated balance sheets as of September 30, 2018 and December 31, 2017 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):

		September 30, 2018
		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	$	6,503	$	(4,745	)	$	1,758
	–swaptions		12,893		(12,700	)		193
	–basis swaps		1,246		(1,112	)		134
Crude oil	–swaps		—		(799	)		(799	)
	−collars		—		(69	)		(69	)
NGLs	–C3 propane swaps		3		(3	)		—
	–C3 propane spread swaps		25,747		(25,747	)		—
Freight	−swaps		301		(301	)		—
		$	46,693	$	(45,476	)	$	1,217

		September 30, 2018
		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	$	(10,030	)	$	4,745	$	(5,285	)
	–swaptions		(8,759	)		12,700		3,941
	–basis swaps		(2,548	)		1,112		(1,436	)
	–calls		(504	)		—		(504	)
Crude oil	–swaps		(57,424	)		799		(56,625	)
	−collars		(717	)		69		(648	)
NGLs	–C3 propane swaps		(20,363	)		3		(20,360	)
	–C3 propane collars		(3,237	)		—		(3,237	)
	–C3 propane spread swaps		(27,741	)		25,747		(1,994	)
	–NC4 butane swaps		(8,223	)		—		(8,223	)
	–C5 natural gasoline swaps		(14,937	)		—		(14,937	)
Freight	–swaps		—			301		301
		$	(154,483	)	$	45,476	$	(109,007	)

		December 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	$	87,794	$	(4,106	)	$	83,688
	–swaptions		18,817		(8,103	)		10,714
	–basis swaps		1,815		(6,673	)		(4,858	)
	–collars		3,039		(500	)		2,539
Crude oil	–swaps		2		(7,928	)		(7,926	)
NGLs	–C2 ethane swaps		57		—			57
	–C3 propane swaps		—		(12,556	)		(12,556	)
	–C3 propane collars		85		(85	)		—
	–C3 propane spread swaps		12,762		(12,762	)		—
	–NC4 butane swaps		—		(6,051	)		(6,051	)
	–C5 natural gasoline swaps		—		(6,727	)		(6,727	)
Freight	–swaps		276		(276	)		—
		$	124,647	$	(65,767	)	$	58,880

		December 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	$	(216	)	$	4,106	$	3,890
	–swaptions		(12,283	)		8,103		(4,180	)
	–basis swaps		(9,580	)		6,673		(2,907	)
	–collars		—			500		500
Crude oil	–swaps		(24,726	)		7,928		(16,798	)
NGLs	–C3 propane swaps		(34,325	)		12,556		(21,769	)
	–C3 propane collars		—			85		85
	–C3 propane spread swaps		(13,983	)		12,762		(1,221	)
	–NC4 butane swaps		(11,188	)		6,051		(5,137	)
	–C5 natural gasoline swaps		(13,488	)		6,727		(6,761	)
Freight	–swaps		—			276		276
		$	(119,789	)	$	65,767	$	(54,022	)

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

	Derivative Fair Value (Loss) Income
		Three Months Ended September 30,						Nine Months Ended September 30,
		2018			2017			2018			2017
Commodity swaps	$	(35,868	)	$	(87,861	)	$	(143,598	)	$	172,457
Swaptions		7,093			(7,602	)		4,100			(7,602	)
Collars		(3,965	)		956			(4,031	)		15,221
Puts		—			(73	)		—			9,646
Calls		197			104			526			1,144
Basis swaps		(2,350	)		6,113			(9,043	)		(2,554	)
Freight swaps		302			(63	)		156			14
Total	$	(34,591	)	$	(88,426	)	$	(151,890	)	$	188,326