DERIVATIVE FINANCIAL INSTRUMENTS

Our results of operations and operating cash flows are affected by changes in market prices for crude oil, natural gas, and NGLs. To manage a portion of our exposure to price volatility from producing crude oil, natural gas, and propane, which is an element of our NGLs, we enter into commodity derivative contracts to protect against price declines in future periods. While we structure these commodity derivatives to reduce our exposure to decreases in commodity prices, they also limit the benefit we might otherwise receive from price increases.

We believe our commodity derivative instruments continue to be effective in achieving the risk management objectives for which they were intended. As of December 31, 2017, we had commodity derivatives positions covering approximately 11.9 MMBbls and 6.6 MMBbls of crude oil production for 2018 and 2019, respectively. As of the same date, we had hedged approximately 56.5 Bcf of natural gas and 1.1 MMBbls of propane for 2018. Our commodity derivative contracts have been entered into at no cost to us as we hedge our anticipated production at the then-prevailing commodity market prices, without adjustment for premium or discount.

As of December 31, 2017, our derivative instruments were comprised of collars, fixed-price commodity swaps, and basis protection swaps.

•

Collars contain a fixed floor price (put) and ceiling price (call). If the index price falls below the fixed put strike price, we receive the market price from the purchaser and receive the difference between the put strike price and index price from the counterparty. If the index price exceeds the fixed call strike price, we receive the market price from the purchaser and pay the difference between the call strike price and index price to the counterparty. If the index price is between the put and call strike price, no payments are due to or from the counterparty;

•

Fixed-price commodity swaps are arrangements that guarantee a fixed price. If the index price is below the fixed contract price, we receive the market price from the purchaser and receive the difference between the index price and the fixed contract price from the counterparty. If the index price is above the fixed contract price, we receive the market price from the purchaser and pay the difference between the index price and the fixed contract price to the counterparty. If the index price and contract price are the same, no payment is due to or from the counterparty;

•

Basis protection swaps are arrangements that guarantee a price differential for natural gas from a specified delivery point. For basis protection swaps, we receive a payment from the counterparty if the price differential is greater than the stated terms of the contract and pay the counterparty if the price differential is less than the stated terms of the contract. If the market price and contract price are the same, no payment is due to or from the counterparty. See Item 7a. - Quantitative and Qualitative Disclosures About Market Risk - Derivative Positions Table found elsewhere in this report for a detailed list of our basis protection swaps.

We have elected not to designate any of our derivative instruments as cash flow hedges, and therefore do not qualify for the use of hedge accounting. Accordingly, changes in the fair value of our derivative instruments are recorded in the statements of operations.

The following table presents the balance sheet location and fair value amounts of our commodity derivative instruments on the consolidated balance sheets as of December 31, 2017 and 2016:



Derivative instruments:		Consolidated balance sheet line item	2017		2016
			(in thousands)
Derivative assets:	Current
	Commodity derivative contracts	Fair value of derivatives	$	7,340	$	8,490
	Basis protection derivative contracts	Fair value of derivatives	6,998		301
			14,338		8,791
	Non-current
	Commodity derivative contracts	Fair value of derivatives	—		1,123
	Basis protection derivative contracts	Fair value of derivatives	—		1,263
			—		2,386
Total derivative assets			$	14,338	$	11,177

Derivative liabilities:	Current
	Commodity derivative contracts	Fair value of derivatives	$	77,999	53,565
	Basis protection derivative contracts	Fair value of derivatives	234		30
	Rollfactor derivative contracts	Fair value of derivatives	1,069		—
			79,302		53,595
	Non-current
	Commodity derivative contracts	Fair value of derivatives	22,343		27,595
Total derivative liabilities			$	101,645	$	81,190

The following table presents the impact of our derivative instruments on our consolidated statements of operations:



	Year Ended December 31,
Consolidated statements of operations line item	2017			2016			2015
	(in thousands)
Commodity price risk management gain (loss), net
Net settlements	$	13,324		$	208,103		$	238,935
Net change in fair value of unsettled derivatives	(17,260		)	(333,784		)	(35,752		)
Total commodity price risk management gain (loss), net	$	(3,936	)	$	(125,681	)	$	203,183

All of our financial derivative agreements contain master netting provisions that provide for the net settlement of all contracts through a single payment in the event of early termination. We have elected not to offset the fair value positions recorded on our consolidated balance sheets.

The following table reflects the impact of netting agreements on gross derivative assets and liabilities:



As of December 31, 2017	Derivative instruments, gross		Effect of master netting agreements			Derivative instruments, net
	(in thousands)
Asset derivatives:
Derivative instruments, at fair value	$	14,338	$	(14,173	)	$	165

Liability derivatives:
Derivative instruments, at fair value	$	101,645	$	(14,173	)	$	87,472



As of December 31, 2016	Derivative instruments, gross		Effect of master netting agreements			Derivative instruments, net
	(in thousands)
Asset derivatives:
Derivative instruments, at fair value	$	11,177	$	(10,930	)	$	247

Liability derivatives:
Derivative instruments, at fair value	$	81,190	$	(10,930	)	$	70,260