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Derivative Financial Instruments
 9 Months Ended
Sep. 30, 2015
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 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 and foreign exchange forward contracts to manage its exposure to fluctuations in the U.S. and Canadian dollar exchange rates.

 

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, 2015 and December 31, 2014, Devon held $169 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.

 

Commodity Derivatives

 

As of September 30, 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 respective indices noted within the table.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 2015

 

107,000

 

$

90.61

 

44,000

 

$

81.36

 

$

88.63

 

28,000

 

$

116.43

Q1-Q4 2016

 

-

 

$

-

 

-

 

$

-

 

$

-

 

18,500

 

$

89.05

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Oil Basis Swaps

Period

 

Index

 

Volume (Bbls/d)

 

Weighted Average Differential to WTI ($/Bbl)

Q4 2015 

 

Western Canadian Select

 

40,000

 

$
(15.58)

Q4 2015 

 

West Texas Sour

 

8,000

 

$
(3.68)

Q4 2015 

 

Midland Sweet

 

16,000

 

$
(2.86)

Q1-Q4 2016 

 

West Texas Sour

 

5,000

 

$
(0.53)

Q1-Q4 2016 

 

Midland Sweet

 

13,000

 

$
0.25 

 

As of September 30, 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 respective indices noted within the table.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 2015

 

250,000

 

$

4.32

 

480,000

 

$

3.52

 

$

3.83

 

550,000

 

$

5.09

Q1-Q4 2016

 

24,863

 

$

3.17

 

-

 

$

-

 

$

-

 

400,000

 

$

4.73

 

 

 

 

 

 

 

 

 

 

 

 

Natural Gas Basis Swaps

Period

 

Index

 

Volume (MMBtu/d)

 

Weighted Average Differential to Henry Hub ($/MMBtu)

Q4 2015

 

Panhandle Eastern Pipe Line

 

100,000

 

$

(0.28)

Q4 2015

 

El Paso Natural Gas

 

70,000

 

$

(0.11)

Q4 2015

 

Houston Ship Channel

 

200,000

 

$

0.01

Q1-Q4 2016

 

Panhandle Eastern Pipe Line

 

175,000

 

$

(0.34)

Q1-Q4 2016

 

El Paso Natural Gas

 

15,000

 

$

(0.13)

Q1-Q4 2016

 

Houston Ship Channel

 

30,000

 

$

0.11

Q1-Q4 2016

 

Transco Zone 4

 

60,000

 

$

0.01

Q1-Q4 2017

 

Panhandle Eastern Pipe Line

 

60,000

 

$

(0.34)

Q1-Q4 2017

 

El Paso Natural Gas

 

30,000

 

$

(0.14)

Q1-Q4 2017

 

Houston Ship Channel

 

35,000

 

$

0.06

Q1-Q4 2017

 

Transco Zone 4

 

85,000

 

$

0.04

 

 

    As of September 30, 2015, EnLink had the following open derivative positions associated with gas processing and fractionation. EnLink’s NGL derivative positions settle by purity product against the average of the prompt month OPIS Mont Belvieu, Texas index. EnLink’s natural gas derivative positions settle against the Henry Hub Gas Daily index.

 

 

 

 

 

 

 

 

 

 

 

 

Period

 

Product

 

Volume (Total)

 

 

Weighted Average Price Paid

 

 

Weighted Average Price Received

Q4 2015-Q4 2016

 

Ethane

 

817

MBbls

 

$

0.28/gal

 

 

Index

Q4 2015-Q4 2016

 

Propane

 

908

MBbls

 

 

Index

 

$

0.88/gal

Q4 2015-Q3 2016

 

Normal Butane

 

74

MBbls

 

 

Index

 

$

0.63/gal

Q4 2015-Q3 2016

 

Natural Gasoline

 

63

MBbls

 

 

Index

 

$

1.30/gal

Q4 2015-Q3 2016

 

Natural Gas

 

2,497

MMBtu/d

 

$

3.13/MMBtu

 

 

Index

 

 

Interest Rate Derivatives

 

    As of September 30, 2015, Devon had the following open interest rate derivative positions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Notional

 

Rate Received

 

Rate Paid

 

Expiration

(Millions)

 

 

 

 

 

 

$

100

 

Three Month LIBOR

 

0.92%

 

December 2016

$

100

 

1.76%

 

Three Month LIBOR

 

January 2019

$

750

 

Three Month LIBOR

 

2.98%

 

December 2048

 

 

Foreign Currency Derivatives

 

As of September 30, 2015, Devon had the following open foreign currency derivative position:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Forward Contract

Currency

 

Contract Type

 

CAD Notional

 

Weighted Average Fixed Rate Received

 

Expiration

 

 

 

 

(Millions)

 

(CAD-USD)

 

 

Canadian Dollar

 

Sell

 

$
1,884 

 

0.752

 

December 2015

 

 

Financial Statement Presentation

 

The following table presents the net gains and losses by derivative financial instrument type followed by the corresponding individual comprehensive statements of earnings caption.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

 

2015

 

2014

 

2015

 

2014

 

 

 

 

 

 

 

 

 

 

 

 

 

Commodity derivatives:

 

(Millions)

Oil, gas and NGL derivatives

 

$
414 

 

$
748 

 

$
426 

 

$
29 

Marketing and midstream revenues

 

 
6 

 

 
1 

 

 
8 

 

 
(2)

Interest rate derivatives:

 

 

 

 

 

 

 

 

 

 

 

 

Other nonoperating items

 

 
(30)

 

 

 —

 

 
(28)

 

 
1 

Foreign currency derivatives:

 

 

 

 

 

 

 

 

 

 

 

 

Other nonoperating items

 

 
91 

 

 
55 

 

 
200 

 

 
15 

Net gains recognized

 

$
481 

 

$
804 

 

$
606 

 

$
43 

 

 

    The following table presents the derivative fair values by derivative financial instrument type followed by the corresponding individual consolidated balance sheet caption.

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2015

 

December 31, 2014

 

 

 

(Millions)

Commodity derivative assets:

 

 

 

 

 

 

 

Derivatives, at fair value

 

 

$
687 

 

$
1,984 

Other long-term assets

 

 

 
4 

 

 
11 

Interest rate derivative assets:

 

 

 

 

 

 

 

Derivatives, at fair value

 

 

 
1 

 

 
1 

Other long-term assets

 

 

 
1 

 

 

 —

Foreign currency derivative assets:

 

 

 

 

 

 

 

Derivatives, at fair value

 

 

 
2 

 

 
8 

Total derivative assets

 

 

$
695 

 

$
2,004 

 

 

 

 

 

 

 

 

Commodity derivative liabilities:

 

 

 

 

 

 

 

Other current liabilities

 

 

$
19 

 

$
28 

Other long-term liabilities

 

 

 
5 

 

 
28 

Interest rate derivative liabilities:

 

 

 

 

 

 

 

Other current liabilities

 

 

 
1 

 

 
1 

Other long-term liabilities

 

 

 
30 

 

 

 —

Total derivative liabilities

 

 

$
55 

 

$
57