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Derivative Activities | 12 Months Ended
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Dec. 31, 2018
Derivative Instruments And Hedging Activities Disclosure [Abstract] |
Derivative Activities |
(1 0) | 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 swap, calls, swaptions or collar contracts 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. Every derivative instrument is required to be recorded on the balance sheet as either an asset or a liability measured at its fair value. Their fair value, which is represented by the estimated amount that would be realized upon termination, based on a comparison of the contract price and a reference price (generally NYMEX for natural gas and crude oil or Mont Belvieu for NGLs), approximated a net derivative asset of $80.9 million at December 31, 2018. These contracts expire monthly through December 2020. The following table sets forth the derivative volumes by year as of December 31, 2018, excluding our basis and freight swaps which are discussed separately below:
Period |  | Contract Type |  | Volume Hedged |  | Weighted Average Hedge Price
Natural Gas |  |  |  |  |  |
2019 |  | Swaps |  | 1,318,041 Mmbtu/day |  | $ 2.86
2019 |  | Swaptions |  | 113,014 Mmbtu/day |  | $ 2.81 (1)
2020 |  | Swaptions |  | 80,000 Mmbtu/day |  | $ 2.77 (1)
Crude Oil |  |  |  |  |  |
2019 |  | Swaps |  | 7,000 bbls/day |  | $ 55.26
2020 |  | Swaps |  | 1,562 bbls/day |  | $ 61.05
2019 |  | Collars |  | 1,000 bbls/day |  | $ 63.00-$ 73.03
NGLs (C3-Propane) |  |  |  |  |  |
January-June, 2019 |  | Swaps |  | 8,500 bbls/day |  | $ 0.92/gallon
January-June, 2019 |  | Collars |  | 3,983 bbls/day |  | $ 0.92-$ 1.02/gallon
NGLs (NC4-Normal Butane) |  |  |  |  |  |
January-March, 2019 |  | Swaps |  | 2,250 bbls/day |  | $ 1.22/gallon
NGLs (C5-Natural Gasoline) |  |  |  |  |  |
2019 |  | Swaps |  | 2,429 bbls/day |  | $ 1.44/gallon
(1) Contains a combined derivative instrument consisting of a fixed price swap and a sold option to extend or double the volume. In 2019, we have swaps in place for 150,000 Mmbtu per day on which the counterparty can elect to extend the contract through December 2020 at a weighted average price of $2.81. In 2020, if the counterparty elects to double the volume, we would have additional swaps covering 80,000 Mmbtu per day at a weighted average price of $2.77. Basis Swap Contracts In addition to the swaps, collars and swaptions above, at December 31, 2018, we had natural gas basis swap contracts which lock in the differential between NYMEX and certain of our physical pricing points in Appalachia. These contracts settle monthly through October 2021 and include a total volume of 70,940,000 Mmbtu. The fair value of these contracts was a net derivative asset of $4.8 million on December 31, 2018. At December 31, 2018, we also had propane spread swap contracts which lock in the differential between Mont Belvieu and international propane indexes. The contracts settle monthly in January through June and October through December 2019. The fair value of these contracts was a net derivative asset of $117,000 on December 31, 2018. Freight Swap Contracts In connection with our international propane sales, we utilize propane swaps. To further hedge our propane price, at December 31, 2018, we had freight swap contracts which lock in the freight rate for a specific trade route on the Baltic Exchange. These contracts settle monthly through December 2019 and cover 10,000 metric tons per month with a fair value net derivative liability of $561,000 on December 31, 2018. These contracts use observable third-party pricing inputs that we consider to be Level 2 fair value classification. Derivative assets and liabilities The combined fair value of derivatives included in the accompanying consolidated balance sheets as of December 31, 2018 and 2017 is summarized below (in thousands). As of December 31, 2018, we are conducting derivative activities with twenty counterparties, of which all but four are secured lenders in our bank credit facility. We believe all of these counterparties are acceptable credit risks. At times, such risks may be concentrated with certain counterparties. The credit worthiness of our counterparties is subject to periodic review. 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.
|  |  | December 31, 2018 |
|  |  | 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 |  | $ | 20,834 |  |  | $ | (11,748 | ) |  | $ | 9,086 |
| –swaptions |  |  | 5,200 |  |  |  | (3,883 | ) |  |  | 1,317 |
| –basis swaps |  |  | 6,468 |  |  |  | (2,822 | ) |  |  | 3,646 |
Crude oil | –swaps |  |  | 26,481 |  |  |  | (651 | ) |  |  | 25,830 |
| –collars |  |  | 5,945 |  |  |  | (707 | ) |  |  | 5,238 |
NGLs | –C3 propane swaps |  |  | 18,719 |  |  |  | (589 | ) |  |  | 18,130 |
| –C3 propane collars |  |  | 8,538 |  |  |  | — |  |  |  | 8,538 |
| –C3 propane spread swaps |  |  | 8,984 |  |  |  | (8,868 | ) |  |  | 116 |
| –NC4 butane swaps |  |  | 4,084 |  |  |  | — |  |  |  | 4,084 |
| –C5 natural gasoline swaps |  |  | 17,371 |  |  |  | — |  |  |  | 17,371 |
Freight | –swaps |  |  | — |  |  |  | (561 | ) |  |  | (561 | )
|  |  | $ | 122,624 |  |  | $ | (29,829 | ) |  | $ | 92,795 |
|  |  | December 31, 2018 |
|  |  | Gross Amounts of Recognized (Liabilities) |  |  | Gross Amounts Offset in the Balance Sheet |  |  | Net Amounts of (Liabilities) Presented in the Balance Sheet |
Derivative (liabilities): |  |  |  |  |  |  |  |  |  |  |  |  |
Natural gas | –swaps |  | $ | (18,332 | ) |  | $ | 11,748 |  |  | $ | (6,584 | )
| –swaptions |  |  | (7,972 | ) |  |  | 3,883 |  |  |  | (4,089 | )
| –basis swaps |  |  | (1,702 | ) |  |  | 2,822 |  |  |  | 1,120 |
Crude oil | –swaps |  |  | — |  |  |  | 651 |  |  |  | 651 |
| –collars |  |  | — |  |  |  | 707 |  |  |  | 707 |
NGLs | –C3 propane swaps |  |  | — |  |  |  | 589 |  |  |  | 589 |
| –C3 propane spread swaps |  |  | (8,868 | ) |  |  | 8,868 |  |  |  | — |
Freight | –swaps |  |  | (561 | ) |  |  | 561 |  |  |  | — |
|  |  | $ | (37,435 | ) |  | $ | 29,829 |  |  | $ | (7,606 | )
|  |  | December 31, 2017 |
|  |  | 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 |  | $ | 87,794 |  |  | $ | (4,106 | ) |  | $ | 83,688 |
| –swaptions |  |  | 18,817 |  |  |  | (8,103 | ) |  |  | 10,714 |
| –basis swaps |  |  | 1,815 |  |  |  | (6,673 | ) |  |  | (4,858 | )
| –collars |  |  | 3,039 |  |  |  | (500 | ) |  |  | 2,539 |
Crude oil | –swaps |  |  | 2 |  |  |  | (7,928 | ) |  |  | (7,926 | )
NGLs | –C2 ethane swaps |  |  | 57 |  |  |  | — |  |  |  | 57 |
| –C3 propane swaps |  |  | — |  |  |  | (12,556 | ) |  |  | (12,556 | )
| –C3 propane collars |  |  | 85 |  |  |  | (85 | ) |  |  | — |
| –C3 propane spread swaps |  |  | 12,762 |  |  |  | (12,762 | ) |  |  | — |
| –NC4 butane swaps |  |  | — |  |  |  | (6,051 | ) |  |  | (6,051 | )
| –C5 natural gasoline swaps |  |  | — |  |  |  | (6,727 | ) |  |  | (6,727 | )
Freight | –swaps |  |  | 276 |  |  |  | (276 | ) |  |  | — |
|  |  | $ | 124,647 |  |  | $ | (65,767 | ) |  | $ | 58,880 |
|  |  | December 31, 2017 |
|  |  | Gross Amounts of Recognized (Liabilities) |  |  | Gross Amounts Offset in the Balance Sheet |  |  | Net Amounts of (Liabilities) Presented in the Balance Sheet |
Derivative (liabilities): |  |  |  |  |  |  |  |  |  |  |  |  |
Natural gas | –swaps |  | $ | (216 | ) |  | $ | 4,106 |  |  | $ | 3,890 |
| –swaptions |  |  | (12,283 | ) |  |  | 8,103 |  |  |  | (4,180 | )
| –basis swaps |  |  | (9,580 | ) |  |  | 6,673 |  |  |  | (2,907 | )
| –collars |  |  | — |  |  |  | 500 |  |  |  | 500 |
Crude oil | –swaps |  |  | (24,726 | ) |  |  | 7,928 |  |  |  | (16,798 | )
NGLs | –C3 propane swaps |  |  | (34,325 | ) |  |  | 12,556 |  |  |  | (21,769 | )
| –C3 propane collars |  |  | — |  |  |  | 85 |  |  |  | 85 |
| –C3 propane spread swaps |  |  | (13,983 | ) |  |  | 12,762 |  |  |  | (1,221 | )
| –NC4 butane swaps |  |  | (11,188 | ) |  |  | 6,051 |  |  |  | (5,137 | )
| –C5 natural gasoline swaps |  |  | (13,488 | ) |  |  | 6,727 |  |  |  | (6,761 | )
Freight | –swaps |  |  | — |  |  |  | 276 |  |  |  | 276 |
|  |  | $ | (119,789 | ) |  | $ | 65,767 |  |  | $ | (54,022 | )
Derivative assets and liabilities The effects of our derivatives on our consolidated statements of operations for the last three years are summarized below (in thousands).
|  | Year Ended December 31, |
|  | Derivative Fair Value (Loss) Income |
|  | 2018 |  |  | 2017 |  |  | 2016 |
Commodity swaps |  | $ | (57,950 | ) |  | $ | 181,095 |  |  | $ | (265,466 | )
Swaptions |  |  | (6,556 | ) |  |  | 6,534 |  |  |  | — |
Collars |  |  | 17,583 |  |  |  | 18,132 |  |  |  | (6,926 | )
Basis swaps |  |  | (1,104 | ) |  |  | (4,647 | ) |  |  | 29,154 |
Puts |  |  | — |  |  |  | 10,929 |  |  |  | (18,201 | )
Calls |  |  | (2,653 | ) |  |  | 987 |  |  |  | (18 | )
Freight swaps |  |  | (512 | ) |  |  | 320 |  |  |  | 66 |
Total |  | $ | (51,192 | ) |  | $ | 213,350 |  |  | $ | (261,391 | )

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- Definition The entire disclosure for derivative instruments and hedging activities including, but not limited to, risk management strategies, non-hedging derivative instruments, assets, liabilities, revenue and expenses, and methodologies and assumptions used in determining the amounts. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -URI http://asc.fasb.org/topic&trid=2229140 + Details
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