Derivative Financial Instruments | 3 Months Ended |
Mar. 31, 2015 |
Derivative Financial Instruments [Abstract] | |
Derivative Financial Instruments | 3. Derivative Financial Instruments |
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Objectives and Strategies |
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Devon periodically enters into derivative financial instruments with respect to a portion of its oil, gas and NGL production to hedge future prices received. Additionally, Devon and EnLink periodically enter into derivative financial instruments with respect to a portion of their oil, gas and NGL marketing activities. These commodity derivative financial instruments include financial price swaps, basis swaps, costless price collars and call options. Devon periodically enters into interest rate swaps to manage its exposure to interest rate volatility. Devon periodically enters into foreign exchange forward contracts to manage its exposure to fluctuations in exchange rates. |
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Devon does not intend to hold or issue derivative financial instruments for speculative trading purposes and has elected not to designate any of its derivative instruments for hedge accounting treatment. |
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Counterparty Credit Risk |
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By using derivative financial instruments, Devon is exposed to credit risk. Credit risk is the failure of the counterparty to perform under the terms of the derivative contract. To mitigate this risk, the hedging instruments are placed with a number of counterparties whom Devon believes are acceptable credit risks. It is Devon’s policy to enter into derivative contracts only with investment-grade rated counterparties deemed by management to be competent and competitive market makers. Additionally, Devon’s derivative contracts contain provisions that provide for collateral payments, depending on levels of exposure and the credit rating of the counterparty. |
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As of March 31, 2015 and December 31, 2014, Devon held $487 million and $524 million, respectively, of cash collateral which represented the estimated fair value of certain derivative positions in excess of Devon’s credit guidelines. The collateral is reported in other current liabilities in the accompanying consolidated balance sheets. |
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Commodity Derivatives |
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As of March 31, 2015, Devon had the following open oil derivative positions. The first table presents Devon’s oil derivatives that settle against the average of the prompt month NYMEX West Texas Intermediate (“WTI”) futures price. The second table presents Devon’s oil derivatives that settle against the Western Canadian Select, West Texas Sour and Midland Sweet indices. |
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| | Price Swaps | | Price Collars | | Call Options Sold |
Period | | Volume (Bbls/d) | | Weighted Average Price ($/Bbl) | | Volume (Bbls/d) | | Weighted Average Floor Price ($/Bbl) | | Weighted Average Ceiling Price ($/Bbl) | | Volume (Bbls/d) | | Weighted Average Price ($/Bbl) |
Q2-Q4 2015 | | 106,442 | | $ | 91.07 | | 31,500 | | $ | 89.67 | | $ | 97.84 | | 28,000 | | $ | 116.43 |
Q1-Q4 2016 | | - | | $ | - | | - | | $ | - | | $ | - | | 18,500 | | $ | 103.11 |
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| | Oil Basis Swaps | | | | | | | | | | | |
Period | | Index | | Volume (Bbls/d) | | Weighted Average Differential to WTI ($/Bbl) | | | | | | | | | | | |
Q2-Q4 2015 | | Western Canadian Select | | 36,320 | | $ | -16.35 | | | | | | | | | | | |
Q2-Q4 2015 | | West Texas Sour | | 8,000 | | $ | -3.68 | | | | | | | | | | | |
Q2-Q4 2015 | | Midland Sweet | | 16,331 | | $ | -2.84 | | | | | | | | | | | |
Q1-Q4 2016 | | West Texas Sour | | 1,000 | | $ | -1.5 | | | | | | | | | | | |
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As of March 31, 2015, Devon had the following open natural gas derivative positions. The first table presents Devon’s natural gas derivatives that settle against the Inside FERC first of the month Henry Hub index. The second table presents Devon’s natural gas derivatives that settle against the Panhandle Eastern Pipe Line, El Paso Natural Gas and Houston Ship Channel indices. |
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| | Price Swaps | | Price Collars | | Call Options Sold |
Period | | Volume (MMBtu/d) | | Weighted Average Price ($/MMBtu) | | Volume (MMBtu/d) | | Weighted Average Floor Price ($/MMBtu) | | Weighted Average Ceiling Price ($/MMBtu) | | Volume (MMBtu/d) | | Weighted Average Price ($/MMBtu) |
Q2-Q4 2015 | | 250,000 | | $ | 4.32 | | 391,964 | | $ | 3.74 | | $ | 4.04 | | 550,000 | | $ | 5.09 |
Q1-Q4 2016 | | - | | $ | - | | - | | $ | - | | $ | - | | 400,000 | | $ | 5 |
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| | Natural Gas Basis Swaps | | | | | | | | | | | |
Period | | Index | | Volume (MMBtu/d) | | Weighted Average Differential to Henry Hub ($/MMBtu) | | | | | | | | | | | |
Q2-Q4 2015 | | Panhandle Eastern Pipe Line | | 100,000 | | $ | -0.28 | | | | | | | | | | | |
Q2-Q4 2015 | | El Paso Natural Gas | | 70,000 | | $ | -0.11 | | | | | | | | | | | |
Q2-Q4 2015 | | Houston Ship Channel | | 200,000 | | $ | 0.01 | | | | | | | | | | | |
Q1-Q4 2016 | | Panhandle Eastern Pipe Line | | 40,000 | | $ | -0.33 | | | | | | | | | | | |
Q1-Q4 2016 | | El Paso Natural Gas | | 15,000 | | $ | -0.13 | | | | | | | | | | | |
Q1-Q4 2016 | | Houston Ship Channel | | 30,000 | | $ | 0.11 | | | | | | | | | | | |
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As of March 31, 2015, the following were open derivative positions associated with gas processing and fractionation at EnLink. EnLink’s NGL positions settle by purity product against the average of the prompt month OPIS Mont Belvieu, Texas index. |
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Period | | Product | | Volume (Total) | | | Weighted Average Price Paid | | | Weighted Average Price Received | | | | | | | |
Q2 2015-Q4 2016 | | Ethane | | 1,113 | MBbls | | $ | 0.28/gal | | | Index | | | | | | | |
Q2 2015-Q4 2016 | | Propane | | 1,170 | MBbls | | | Index | | $ | 0.95/gal | | | | | | | |
Q2 2015-Q1 2016 | | Normal Butane | | 117 | MBbls | | | Index | | $ | 0.78/gal | | | | | | | |
Q2 2015-Q1 2016 | | Natural Gasoline | | 101 | MBbls | | | Index | | $ | 1.32/gal | | | | | | | |
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Interest Rate Derivatives |
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As of March 31, 2015, Devon had the following open interest rate derivative positions: |
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Notional | | Rate Received | | Rate Paid | | Expiration | | | | | | | | | | | |
(Millions) | | | | | | | | | | | | | | | | | |
$ | 100 | | Three Month LIBOR | | 0.92% | | Dec-16 | | | | | | | | | | | |
$ | 100 | | 1.76% | | Three Month LIBOR | | Jan-19 | | | | | | | | | | | |
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Foreign Currency Derivatives |
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As of March 31, 2015, Devon had the following open foreign currency derivative position: |
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Forward Contract | | | | | | | | | |
Currency | | Contract Type | | CAD Notional | | Weighted Average Fixed Rate Received | | Expiration | | | | | | | | | |
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Canadian Dollar | | Sell | | $ | 1,884 | | 0.799 | | Jun-15 | | | | | | | | | |
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Financial Statement Presentation |
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The following table presents the net gains and losses recognized in the accompanying consolidated comprehensive statements of earnings associated with derivative financial instruments. |
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| | Comprehensive Statements of | | Three Months Ended March 31, | | | | | | | | | | |
| | Earnings Caption | | 2015 | | 2014 | | | | | | | | | | |
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Oil, gas and NGL commodity derivatives | | Oil, gas and NGL derivatives | | $ | 294 | | $ | -320 | | | | | | | | | | |
Midstream commodity derivatives | | Marketing and midstream revenues | | | 2 | | | -1 | | | | | | | | | | |
Interest rate derivatives | | Other nonoperating items | | | 1 | | | - | | | | | | | | | | |
Foreign currency derivatives | | Other nonoperating items | | | 133 | | | 14 | | | | | | | | | | |
Net gains (losses) recognized in comprehensive statements of earnings | | $ | 430 | | $ | -307 | | | | | | | | | | |
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The following table presents the derivative fair values included in the accompanying consolidated balance sheets. |
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| | Balance Sheet Caption | | 31-Mar-15 | | 31-Dec-14 | | | | | | | | | | |
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Asset derivatives: | | | | | | | | | | | | | | | | | | |
Oil, gas and NGL commodity derivatives | | Derivatives, at fair value | | $ | 1,668 | | $ | 1,967 | | | | | | | | | | |
Oil, gas and NGL commodity derivatives | | Other long-term assets | | | 2 | | | 1 | | | | | | | | | | |
Midstream commodity derivatives | | Derivatives, at fair value | | | 14 | | | 17 | | | | | | | | | | |
Midstream commodity derivatives | | Other long-term assets | | | 8 | | | 10 | | | | | | | | | | |
Interest rate derivatives | | Derivatives, at fair value | | | 2 | | | 1 | | | | | | | | | | |
Interest rate derivatives | | Other long-term assets | | | 1 | | | - | | | | | | | | | | |
Foreign currency derivatives | | Derivatives, at fair value | | | 22 | | | 8 | | | | | | | | | | |
Total asset derivatives | | | | $ | 1,717 | | $ | 2,004 | | | | | | | | | | |
Liability derivatives: | | | | | | | | | | | | | | | | | | |
Oil, gas and NGL commodity derivatives | | Other current liabilities | | $ | 45 | | $ | 25 | | | | | | | | | | |
Oil, gas and NGL commodity derivatives | | Other long-term liabilities | | | 7 | | | 26 | | | | | | | | | | |
Midstream commodity derivatives | | Other current liabilities | | | 3 | | | 3 | | | | | | | | | | |
Midstream commodity derivatives | | Other long-term liabilities | | | 2 | | | 2 | | | | | | | | | | |
Interest rate derivatives | | Other current liabilities | | | 1 | | | 1 | | | | | | | | | | |
Total liability derivatives | | | | $ | 58 | | $ | 57 | | | | | | | | | | |
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