Derivative Activities | (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 do not utilize complex derivatives, as we typically utilize commodity swaps or options 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 asset of $150.9 million at September 30, 2016. These contracts expire monthly through December 2018. The following table sets forth our commodity-based derivative volumes by year as of September 30, 2016, excluding our basis and freight swaps which are discussed separately below: Period Contract Type Volume Hedged Weighted Natural Gas 2016 Swaps (1) 901,739 Mmbtu/day $ 3.32 2017 Swaps (1) 478,192 Mmbtu/day $ 3.14 2018 Swaps 70,000 Mmbtu/day $ 2.92 2016 Collar (1) 32,609 Mmbtu/day $ 4.00-$ 4.71 2017 Collar (1) 34,521 Mmbtu/day $ 4.00-$ 5.06 2016 Purchased Put (1) 218,478 Mmbtu/day $ 3.54 (2) 2017 Purchased Put (1) 175,890 Mmbtu/day $ 3.48 (3) Crude Oil 2016 Swaps (1) 8,640 bbls/day $ 69.49 2017 Swaps (1) 5,416 bbls/day $ 57.18 2018 Swaps 500 bbls/day $ 54.25 2016 Collar (1) 848 bbls/day $ 80.00-$ 99.70 NGLs (C2-Ethane) 2016 Swaps (1) 5,839 bbls/day $ 0.46/gallon 2017 Swaps 3,000 bbls/day $ 0.27/gallon NGLs (C3-Propane) 2016 Swaps (1) 11,142 bbls/day $ 0.75/gallon 2017 Swaps 6,966 bbls/day $ 0.52/gallon NGLs (iC4-isobutane) 2016 Swaps (1) 1,969 bbls/day $ 1.21/gallon NGLs (NC4-Normal Butane) 2016 Swaps (1) 6,071 bbls/day $ 0.72/gallon 2017 Swaps 1,500 bbls/day $ 0.65/gallon NGLs (C5-Natural Gasoline) 2016 Swaps (1) 8,142 bbls/day $ 1.36/gallon 2017 Swaps 2,000 bbls/day $ 0.98/gallon (1) (2 ) (3) Every derivative instrument is required to be recorded on the balance sheet as either an asset or a liability measured at its fair value. If the derivative does not qualify as a hedge or is not designated as a hedge, changes in fair value of these non-hedge derivatives are recognized in earnings as derivative fair value income or loss. Basis Swap Contracts In addition to the swaps above, at September 30, 2016, we had natural gas basis swap contracts which lock in the differential between NYMEX and certain of our physical pricing indices primarily in Appalachia. These contracts settle monthly through December 2017 and include a total volume of 59,385,000 Mmbtu. The fair value of these contracts was a gain of $13.8 million on September 30, 2016. At September 30, 2016, 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 2017 and include a total volume of 525,000 barrels in 2016 and 1,837,500 barrels in 2017. The fair value of these contracts was a gain of $4.1 million on September 30, 2016. Freight Swap Contracts In connection with our international propane spread swaps, at September 30, 2016, we had freight swap contracts which lock in the freight rate for a specific trade route on the Baltic Exchange. These contracts settle monthly in fourth quarter 2016 and fourth quarter 2017 and cover 5,000 metric tons per month with a fair value loss of $155,000 on September 30, 2016. These contracts use observable third-party pricing inputs that we consider to be a 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, 2016 and December 31, 2015 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, 2016 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 $ 68,069 $ (24,934 ) $ 43,135 –basis swaps 15,066 (1,191 ) 13,875 –collars 15,086 — 15,086 –puts 50,792 (145 ) 50,647 Crude oil –swaps 29,696 (1,292 ) 28,404 –collars 2,416 — 2,416 NGLs –C2 ethane swaps 6,332 (185 ) 6,147 –C3 propane swaps 8,535 (3,719 ) 4,816 –C3 propane spread swaps 12,585 (8,506 ) 4,079 –NC4 butane swaps 1,282 (371 ) 911 –iC4 isobutane swaps 3,557 — 3,557 –C5 natural gasoline swaps 9,722 (2,820 ) 6,902 Freight –swaps 2 (157 ) (155 ) $ 223,140 $ (43,320 ) $ 179,820 September 30, 2016 Gross Amounts of Recognized (Liabilities) Gross Amounts Net Amounts of (Liabilities) Presented in the Balance Sheet Derivative (liabilities): Natural gas –swaps $ (31,557 ) $ 24,934 $ (6,623 ) –basis swaps (1,278 ) 1,191 (87 ) –puts — 145 145 Crude oil –swaps (2,456 ) 1,292 (1,164 ) NGLs –C2 ethane swaps (185 ) 185 — –C3 propane swaps (3,538 ) 3,719 181 –C3 propane spread swaps (8,506 ) 8,506 — –NC4 butane swaps (2,407 ) 371 (2,036 ) –C5 natural gasoline swaps (4,447 ) 2,820 (1,627 ) Freight –swaps (157 ) 157 — $ (54,531 ) $ 43,320 $ (11,211 ) December 31, 2015 Gross Amounts of Assets Gross Amounts Net Amounts of Derivative assets: Natural gas –swaps $ 219,357 $ (10,245 ) $ 209,112 –basis swaps 8,251 (2,765 ) 5,486 Crude oil –swaps 38,699 — 38,699 NGLs –C3 propane swaps 15,884 — 15,884 –C3 propane spread swaps 2,497 (2,497 ) — –NC4 butane swaps 6,968 — 6,968 –C5 natural gasoline swaps 12,694 (81 ) 12,613 $ 304,350 $ (15,588 ) $ 288,762 December 31, 2015 Gross Amounts of (Liabilities) Gross Amounts Net Amounts of Derivative (liabilities): Natural gas –swaps $ (10,245 ) $ 10,245 $ — –basis swaps (2,786 ) 2,765 (21 ) NGLs –C3 propane spread swap (3,633 ) 2,497 (1,136 ) –C5 natural gasoline swaps (81 ) 81 — $ (16,745 ) $ 15,588 $ (1,157 ) The effects of our derivatives on our consolidated statements of operations are summarized below (in thousands): Three Months Ended September 30, Derivative Fair Value Income (Loss) 2016 2015 Commodity swaps $ 38,662 $ 198,245 Re-purchased swaps — 1,683 Collars 1,320 5,626 Puts 2,842 — Basis swaps 21,853 (3,550 ) Freight swaps (121 ) — Total $ 64,556 $ 202,004 \ Nine Months Ended September 30, Derivative Fair Value Income (Loss) 2016 2015 Commodity swaps $ (40,270 ) $ 281,921 Re-purchased swaps — 1,683 Collars 1,320 12,391 Puts 2,842 — Basis swaps 24,929 (5,943 ) Freight swaps (155 ) — Total $ (11,334 ) $ 290,052 |