7.	Derivative Instruments and Fair Value Measurements

At December 31, 2017, we had the following commodity derivatives positions outstanding:

Commodity and Period	Contract Type	Volume Transacted	Contract Price
Crude Oil
January 2018 — December 2018	Swap	300 Bbls/day	$50.00/Bbl
January 2018 — March 2018	Collar	1,000 Bbls/day	$50.00/Bbl - $55.05/Bbl
January 2018 — June 2018	Collar	500 Bbls/day	$55.00/Bbl - $60.00/Bbl

Natural Gas
January 2018 — December 2018	Swap	200,000 MMBtu/month	$3.085/MMBtu
January 2018 — December 2018	Swap	250,000 MMBtu/month	$3.084/MMBtu

NGLs (C3 - Propane)
January 2018 — March 2018	Swap	450 Bbls/day	$30.24/Bbl
NGLs (IC4 - Isobutane)
January 2018 — March 2018	Swap	50 Bbls/day	$36.12/Bbl
NGLs (NC4 - Butane)
January 2018 — March 2018	Swap	150 Bbls/day	$35.70/Bbl

After December 31, 2017, we entered into the following commodity derivative positions:

Commodity and Period	Contract Type	Volume Transacted	Contract Price
Crude Oil
January 2018 — September 2018	Swap	700 Bbls/day	$60.50/Bbl
April 2018 — September 2018	Swap	800 Bbls/day	$60.50/Bbl
NGLs (C2 - Ethane)
February 2018 — December 2018	Swap	1,000 Bbls/day	$11.424/Bbl
NGLs (C3 - Propane)
February 2018 — December 2018	Swap	600 Bbls/day	$32.991/Bbl
NGLs (IC4 - Isobutane)
February 2018 — December 2018	Swap	50 Bbls/day	$38.262/Bbl
NGLs (NC4 - Butane)
February 2018 — December 2018	Swap	200 Bbls/day	$38.22/Bbl
NGLs (C5 - Pentane)
January 2018 — December 2018	Swap	200 Bbls/day	$56.364/Bbl

The following summarizes the fair value of our open commodity derivatives as of December 31, 2017 and 2016 (in thousands):

	Balance Sheet Location	Fair Value
		December 31, 2017			December 31, 2016
Derivatives not designated as hedging instruments
Commodity derivatives	Derivative assets	$	1,398		$	—
Commodity derivatives	Derivative liabilities		(2,181	)		(4,880	)

The following summarizes the cash settlements and change in the fair value of our commodity derivatives (in thousands):

		Year Ended December 31,
		2017			2016			2015
Derivatives not designated as hedging instruments
Commodity derivatives	Net cash (payment) receipt on derivative settlements	$	(4,359	)	$	6,132		$	52,489
	Non-cash fair value gain (loss) on derivatives		4,097			(11,616	)		(33,214	)
	Commodity derivative (loss) gain	$	(262	)	$	(5,484	)	$	19,275

Derivative assets and liabilities, at fair value, are included on our consolidated balance sheets as current or non-current assets or liabilities based on the anticipated timing of cash settlements under the related contracts. Changes in the fair value of our commodity derivative contracts are recorded in earnings as they occur and included in income (expense) on our consolidated statements of operations. We estimate the fair value of swap contracts based on the present value of the difference in exchange-quoted forward price curves and contractual settlement prices multiplied by notional quantities. We internally valued the option contracts using industry-standard option pricing models and observable market inputs. We use our internal valuations to determine the fair values of the contracts that are reflected on our consolidated balance sheets.

We are exposed to credit losses in the event of nonperformance by the counterparties on our commodity derivatives positions and have considered the exposure in our internal valuations. However, we do not anticipate nonperformance by the counterparties over the term of the commodity derivatives positions.

To estimate the fair value of our commodity derivatives positions, we use market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated or generally unobservable. We primarily apply the market approach for recurring fair value measurements and attempt to use the best available information. We determine the fair value based upon the hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and lowest priority to unobservable inputs (Level 3 measurement). The three levels of fair value hierarchy are as follows:

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Level 1 — Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. At December 31, 2017, we had no Level 1 measurements.

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Level 2 — Pricing inputs are other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date. Level 2 includes those financial instruments that are valued using models or other valuation methodologies. These models are primarily industry-standard models that consider various assumptions, including quoted forward prices for commodities, time value, volatility factors and current market and contractual prices for the underlying instruments, as well as other relevant economic measures. Our derivatives, which consist primarily of commodity swaps and collars, are valued using commodity market data which is derived by combining raw inputs and quantitative models and processes to generate forward curves. Where observable inputs are available, directly or indirectly, for substantially the full term of the asset or liability, the instrument is categorized in Level 2. At December 31, 2017, all of our commodity derivatives were valued using Level 2 measurements.

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Level 3 — Pricing inputs include significant inputs that are generally less observable from objective sources. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value. The fair value of oil and gas properties acquired in the Bolt-on Acquisition represents a Level 3 measurement. The fair value of oil and gas properties used in estimating our recognized impairment loss in 2015 represents a nonrecurring Level 3 measurement. At December 31, 2017, we had no recurring Level 3 measurements.

Nonrecurring Fair Value Measurements

We recorded no impairment of our proved properties for the years ended December 31, 2017, and 2016. Due to the impact of the decline in forward commodity prices during the year ended December 31, 2015, there were indications that the carrying values of certain of our oil and gas properties may be impaired and undiscounted cash flows attributable to these assets indicated their carrying amounts were not expected to be recovered. For the year ended December 31, 2015, we recognized an impairment loss of $214.7 million related primarily to our vertical Canyon wells, due to the impact of the decline in forward commodity prices. At September 30, 2015, we had $22 million in value recorded for these properties, which was the estimated fair value. We estimated the fair value of the proved oil and gas properties and equipment using a discounted cash flow model, which is a Level 3 fair value measurement. Significant inputs used to determine the fair value include estimates of (i) future sales prices for oil and gas based on NYMEX strip prices, (ii) pricing adjustments for differentials, (iii) production costs, (iv) capital expenditures, (v) future oil and gas reserves to be recovered and the timing thereof, and (vi) discount rates.

Financial Instruments Not Recorded at Fair Value

The following table sets forth the fair values of financial instruments that are not recorded at fair value on our financial statements (in thousands).

December 31, 2017

Carrying

Amount

Fair Value

Senior Notes, net

84,185

74,798

The fair value of the Senior Notes is based on quoted market prices, but the Senior Notes are not actively traded in the public market. Accordingly, the fair value of the Senior Notes would be classified as Level 2 in the fair value hierarchy.