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Derivative Financial Instruments
 9 Months Ended
Sep. 30, 2014
Derivative Financial Instruments [Abstract]  
Derivative Financial Instruments

3.     Derivative Financial Instruments

 

Objectives and Strategies

 

Devon periodically enters into derivative financial instruments with respect to a portion of its oil, gas and NGL production. These instruments are used to manage the inherent uncertainty of future revenues due to commodity price volatility and typically 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. Additionally, EnLink manages its exposure to fluctuations in commodity prices by hedging the impact of market fluctuations.

 

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.

 

Counterparty Credit Risk

 

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.

 

As of September 30, 2014, Devon held $31 million 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 balance sheet.

 

Commodity Derivatives

 

As of September 30, 2014, 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 futures price. The second table presents Devon’s oil derivatives that settle against the Western Canadian Select index.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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)

Q4 2014 

 

75,000

 

$

94.14

 

64,750

 

$

89.33

 

$

100.00

 

42,000

 

$

116.43

Q1-Q4 2015

 

106,736

 

$

91.22

 

31,500

 

$

89.67

 

$

97.84

 

28,000

 

$

116.43

Q1-Q4 2016

 

—

 

$

—

 

—

 

$

—

 

$

—

 

18,500

 

$

103.11

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Oil Basis Swaps

Period

 

Index

 

Volume (Bbls/d)

 

Weighted Average Differential to WTI ($/Bbl)

Q4 2014

 

Western Canadian Select

 

50,000

 

$
(17.40)

Q1-Q4 2015 

 

Western Canadian Select

 

14,890

 

$
(18.92)

 

As of September 30, 2014, 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 AECO and PEPL indices.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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)

Q4 2014 

 

800,000

 

$

4.42

 

460,000

 

$

4.03

 

$

4.51

 

500,000

 

$

5.00

Q1-Q4 2015

 

210,000

 

$

4.38

 

260,000

 

$

4.05

 

$

4.36

 

550,000

 

$

5.09

Q1-Q4 2016

 

—

 

$

—

 

—

 

$

—

 

$

—

 

400,000

 

$

5.00

 

 

 

 

 

 

 

 

 

 

 

 

 

Natural Gas Basis Swaps

Period

 

Index

 

Volume (MMBtu/d)

 

Weighted Average Differential to Henry Hub ($/MMBtu)

Q4 2014

 

AECO

 

94,781

 

$

(0.52)

Q1-Q4 2015

 

PEPL

 

100,000

 

$

(0.28)

 

 

Interest Rate Derivatives

 

    As of September 30, 2014, Devon had the following open interest rate derivative positions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Notional

 

Rate Received

 

Rate Paid

 

Expiration

(In millions)

 

 

 

 

 

 

$

100

 

Three Month LIBOR

 

0.92%

 

December 2016

$

100

 

1.76%

 

Three Month LIBOR

 

January 2019

 

 

Foreign Currency Derivatives

 

As of September 30, 2014, Devon had the following open foreign currency derivative positions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Forward Contract

Currency

 

Contract Type

 

CAD Notional

 

Weighted Average Fixed Rate Received

 

Expiration

 

 

 

 

(In millions)

 

(CAD-USD)

 

 

Canadian Dollar

 

Sell

 

$
1,312 

 

0.899

 

December 2014

 

Financial Statement Presentation

 

The following table presents the net gains and losses recognized in the accompanying comprehensive statements of earnings associated with derivative financial instruments.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive Statements of

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

 

Earnings Caption

 

2014

 

2013

 

2014

 

2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In millions)

Commodity derivatives

 

Oil, gas and NGL derivatives

 

$
748 

 

$
(141)

 

$
29 

 

$
(95)

EnLink commodity derivatives

 

Marketing and midstream revenues

 

 
1 

 

 

 —

 

 
(2)

 

 

 —

Interest rate derivatives

 

Other nonoperating items

 

 

 —

 

 
1 

 

 
1 

 

 
1 

Foreign currency derivatives

 

Other nonoperating items

 

 
55 

 

 
(28)

 

 
15 

 

 
29 

Net gains (losses) recognized in comprehensive statements of earnings

 

$
804 

 

$
(168)

 

$
43 

 

$
(65)

 

 

The following table presents the derivative fair values included in the accompanying balance sheets.

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance Sheet Caption

 

September 30, 2014

 

December 31, 2013

 

 

 

 

 

 

 

 

 

 

 

 

 

(In millions)

Asset derivatives:

 

 

 

 

 

 

 

 

Commodity derivatives

 

Other current assets

 

$
231 

 

$
75 

Commodity derivatives

 

Other long-term assets

 

 
66 

 

 
28 

EnLink commodity derivatives

 

Other current assets

 

 
1 

 

 

 —

Interest rate derivatives

 

Other current assets

 

 
1 

 

 

 —

Foreign currency derivatives

 

Other current assets

 

 
11 

 

 

 —

Total asset derivatives

 

 

 

$
310 

 

$
103 

Liability derivatives:

 

 

 

 

 

 

 

 

Commodity derivatives

 

Other current liabilities

 

$
30 

 

$
58 

Commodity derivatives

 

Other long-term liabilities

 

 
50 

 

 
62 

EnLink commodity derivatives

 

Other current liabilities

 

 
1 

 

 

 —

EnLink commodity derivatives

 

Other long-term liabilities

 

 
1 

 

 

 —

Interest rate derivatives

 

Other current liabilities

 

 
1 

 

 

 —

Interest rate derivatives

 

Other long-term liabilities

 

 
1 

 

 

 —

Foreign currency derivatives

 

Other current liabilities

 

 

 —

 

 
1 

Total liability derivatives

 

 

 

$
84 

 

$
121