Derivative Financial Instruments

3 Months Ended

Mar. 31, 2017

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. Our derivative strategies are outlined in our Annual Report on Form 10-K for the year ended December 31, 2016.

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 March 31, 2017, 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	4,675	$	45.43	$	—	$	—	$	—	$	—	$	(29	)
Fixed-price swaps with sold puts:	3,118
Fixed-price swaps		87.99		—		—		—		—		112
Sold puts		—		—		73.09		—		—		(68		)
Collars with sold puts:	910
Collars		—		—		—		90.00		95.69		36
Sold puts		—		—		75.00		—		—		(22		)
Purchased calls	4,028	—		73.52		—		—		—		1
Total												$	30

_________________

(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 March 31, 2017, the deferred premiums totaled $7 million.

Natural Gas

		NYMEX Contract Price Per MMBtu
				Collars				Estimated Fair Value Asset (Liability)
Period and Type of Instrument	Volume in MMMBtus	Swaps (Weighted Average)		Floors (Weighted Average)		Ceilings (Weighted Average)
								(In millions)
2017:
Fixed-price swaps	20,625	$	2.73	$	—	$	—	$	(12	)
Collars	41,260	—		2.82		3.23		(10		)
2018:
Fixed-price swaps	10,950	3.01		—		—		—
Collars	18,150	—		3.00		3.55		—
Total								$	(22	)

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
	(In millions)									(In millions)
March 31, 2017
Oil positions	$	156	$	(104	)	$	52	$	—	$	(126	)	$	104	$	(22	)	$	—
Natural gas positions	10		(8		)	—		2		(32		)	8		(24		)	—
Total	$	166	$	(112	)	$	52	$	2	$	(158	)	$	112	$	(46	)	$	—
December 31, 2016
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	)

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

	Three Months Ended   March 31,
	2017			2016
	(In millions)
Derivatives not designated as hedging instruments:
Realized gain (loss) on oil positions	$	26		$	71
Realized gain (loss) on natural gas positions	(6		)	11
Total realized gain (loss)	20			82
Unrealized gain (loss) on oil positions	1			(83		)
Unrealized gain (loss) on natural gas positions	32			(16		)
Total unrealized gain (loss)	33			(99		)
Total	$	53		$	(17	)

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 March 31, 2017, 10of our 15counterparties accounted for approximately 84%of our contracted volumes, with the largest counterparty accounting for approximately 13%.

At March 31, 2017, approximately 83% 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.