Derivative Financial Instruments

12 Months Ended

Dec. 31, 2016

Derivative Instruments and Hedges, Assets [Abstract]

Derivative Financial Instruments Text Block

Derivative Financial Instruments

Commodity Derivative Instruments

We utilize derivative strategies that consist of either a single derivative instrument or a combination of instruments to manage the variability in cash flows associated with the forecasted sale of our future domestic oil and natural gas production. While the use of derivative instruments may limit or partially reduce the downside risk of adverse commodity price movements, their use also may limit future income from favorable commodity price movements.

• Fixed-price swaps. With respect to a swap position, the counterparty is required to make a payment to us if the settlement price for any settlement period is less than the swap strike price, and we are required to make a payment to the counterparty if the settlement price for any settlement period is greater than the swap strike price.

• Collars (combination of purchased put options (floor) and sold call options (ceiling)). For a collar position, the counterparty is required to make a payment to us if the settlement price for any settlement period is below the floor strike price while we are required to make payment to the counterparty if the settlement price for any settlement period is above the ceiling strike price. Neither party is required to make a payment to the other party if the settlement price for any settlement period is equal to or greater than the floor strike price and equal to or less than the ceiling strike price.

• Fixed-price swaps with sold puts. A swap with a sold put position consists of a standard swap position plus a put sold by us with a strike price below the associated fixed-price swap. This structure enables us to increase the fixed-price swap with the value received through the sale of the put. If the settlement price for any settlement period falls equal to or below the put strike price, then we will only receive the difference between the swap price and the put strike price. If the settlement price is greater than the put strike price, the result is the same as it would have been with a standard swap only.

• Collars with sold puts. A collar with a sold put position consists of a standard collar position plus a put sold by us with a strike price below the floor strike price of the collar. This structure enables us to improve the collar strike prices with the value received through the sale of the additional put. If the settlement price for any settlement period falls equal to or below the additional put strike price, then we will receive the difference between the floor strike price and the additional put strike price. If the settlement price is greater than the additional put strike price, the result is the same as it would have been with a standard collar only.

• Purchased calls. Purchased calls are options that require a counterparty to make a payment to us if the settlement price is above the call strike price (excluding the effects of the deferred premium owed by us to the counterparty). As a result, these positions lock in the value of a portion of our corresponding oil swaps with sold puts as well as collars with sold puts.

• Swaptions. A swaption is an option to exercise a swap where the buyer (counterparty) of the swaption purchases the right from the seller (Newfield), but not the obligation, to enter into a fixed-price swap with the seller on a predetermined date (expiration date). The swap price is a fixed price determined at the time of the swaption contract. If the swaption is exercised, the contract will become a swap treated consistent with our other fixed-price swaps.

For discussion of the accounting policies associated with our derivative financial instruments (including the offsetting of derivative assets and liabilities), see Note 1, "Organization and Summary of Significant Accounting Policies."

Our oil and gas derivative contracts are settled based upon reported prices on the NYMEX. The estimated fair value of these contracts is based upon various factors, including closing exchange prices on the NYMEX, over-the-counter quotations, estimated volatility, non-performance risk adjustments using counterparty rates of default and time to maturity. The calculation of the fair value of options requires the use of an option-pricing model. See Note 5, "Fair Value Measurements."

At December 31, 2016, we had outstanding derivative positions as set forth in the tables below.

Crude Oil

		NYMEX Contract Price Per Bbl
								Collars				Estimated Fair Value Asset (Liability)
Period and Type of Instrument	Volume in MBbls	Swaps (Weighted Average)		Purchased Calls (Weighted Average)(2)		Sold Puts(Weighted Average) (1)		Floors (Weighted Average)		Ceilings (Weighted Average)
												(In millions)
2017:
Fixed-price swaps	6,205	$	45.43	$	—	$	—	$	—	$	—	$	(67	)
Fixed-price swaps with sold puts:	4,468
Fixed-price swaps		88.37		—		—		—		—		142
Sold puts		—		—		73.28		—		—		(79		)
Collars with sold puts:	2,080
Collars		—		—		—		90.00		95.59		71
Sold puts		—		—		75.00		—		—		(41		)
Purchased calls	6,548	—		73.81		—		—		—		3
Total												$	29

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(1) For the volumes with sold puts, if the market prices remain below our sold puts at contract settlement, we will receive the market price plus the following:

• the difference between our floors and our sold puts for collars with sold puts; or

• the difference between our swaps and our sold puts for fixed-price swaps with sold puts.

We have effectively locked in the spreads noted above (less the deferred call premium) for all of the volumes with sold puts using purchased calls.

(2) We deferred the premiums related to the purchased calls until contract settlement. At December 31, 2016, the deferred premiums totaled $10 million.

Natural Gas

Period and Type of Instrument		NYMEX Contract Price Per MMBtu
				Collars
	Volume in MMMBtus	Swaps (Weighted Average)		Floors(Weighted Average)		Ceilings(Weighted Average)		Estimated Fair Value Asset (Liability)
								(In millions)
2017:
Fixed-price swaps	27,375	$	2.73	$	—	$	—	$	(24	)
Collars	53,860	—		2.82		3.23		(27		)
2018:
Fixed-price swaps	10,950	3.01		—		—		(1		)
Collars	18,150	—		3.00		3.55		(2		)
Total								$	(54	)

Additional Disclosures about Derivative Financial Instruments

We had derivative financial instruments recorded in our consolidated balance sheet as assets (liabilities) at their respective estimated fair value, as set forth below.

	Derivative Assets									Derivative Liabilities
	Gross Fair Value		Offset in Balance Sheet			Balance Sheet Location				Gross Fair Value			Offset in Balance Sheet		Balance Sheet Location
						Current		Noncurrent							Current			Noncurrent
December 31, 2016	(In millions)									(In millions)
Oil positions	$	226	$	(151	)	$	75	$	—	$	(197	)	$	151	$	(46	)	$	—
Natural gas positions	10		(10		)	—		—		(64		)	10		(51		)	(3		)
Total	$	236	$	(161	)	$	75	$	—	$	(261	)	$	161	$	(97	)	$	(3	)
December 31, 2015
Oil positions	$	1,005	$	(638	)	$	262	$	105	$	(660	)	$	638	$	(13	)	$	(9	)
Natural gas positions	22		—			22		—		—			—		—			—
Total	$	1,027	$	(638	)	$	284	$	105	$	(660	)	$	638	$	(13	)	$	(9	)

The amount of gain (loss) recognized in "Commodity derivative income (expense)" in our consolidated statement of operations related to our derivative financial instruments follows:

	Year Ended December 31,
	2016			2015			2014
	(In millions)
Derivatives not designated as hedging instruments:
Realized gain (loss) on oil positions	$	199		$	375		$	(3	)
Realized gain (loss) on natural gas positions	2			130			(36		)
Total realized gain (loss)	201			505			(39		)
Unrealized gain (loss) on oil positions	(316		)	(165		)	535
Unrealized gain (loss) on natural gas positions	(76		)	(81		)	114
Total unrealized gain (loss)	(392		)	(246		)	649
Total	$	(191	)	$	259		$	610

The use of derivative transactions involves the risk that the counterparties, which generally are financial institutions, will be unable to meet the financial terms of such transactions. Our derivative contracts are with multiple counterparties to minimize our exposure to any individual counterparty, and we have netting arrangements with all of our counterparties that provide for offsetting payables against receivables from the separate derivative instruments with that counterparty. At December 31, 2016, 10 of our 16 counterparties accounted for approximately 85% of our contracted volumes, with the largest counterparty accounting for approximately 14%.

At December 31, 2016, approximately 84% of our volumes subject to derivative instruments are with lenders under our credit facility. Our credit facility, senior notes and substantially all of our derivative instruments contain provisions that provide for cross defaults and acceleration of those debt and derivative instruments in certain situations.