Derivative Financial Instruments

12 Months Ended

Dec. 31, 2019

Derivative Instruments and Hedging Activities Disclosure [Abstract]

The Company primarily utilizes commodity swap contracts, collar contracts, collar contracts with short puts and basis swap contracts to (i) reduce the effect of price volatility on the commodities the Company produces and sells or consumes, (ii) support the Company's annual capital budgeting and expenditure plans and (iii) reduce commodity price risk associated with certain capital projects. The Company also, from time to time, utilizes interest rate contracts to reduce the effect of interest rate volatility on the Company's indebtedness.

Oil production derivatives. The Company sells its oil production at the lease and the sales contracts governing such oil production are tied directly to, or are correlated with, New York Mercantile Exchange ("NYMEX") West Texas Intermediate ("WTI") oil prices. The Company also enters into pipeline capacity commitments in order to secure available oil, NGL and gas transportation capacity from the Company's areas of production. To diversify the oil prices it receives, the Company enters into purchase transactions with third parties and separate sale transactions with third parties for a portion of the Company's oil sales to Gulf Coast refineries or international export markets at prices that are highly correlated with Brent oil prices. As a result, the Company will generally use Brent derivative contracts to manage future oil price volatility.

Volumes per day associated with outstanding oil derivative contracts as of December 31, 2019 and the weighted average oil prices for those contracts are as follows:


	2020										Year Ending December 31, 2021
	First Quarter		Second Quarter		Third Quarter		Fourth Quarter
Brent swap contracts:
Volume per day (Bbl)	3,407		—		—		—		—
Price per Bbl	$	60.86	$	—	$	—	$	—	$	—
Brent collar contracts with short puts:
Volume per day (Bbl)	145,500		135,500		115,500		115,500		7,000
Price per Bbl:
Ceiling	$	68.46	$	68.84	$	69.78	$	69.78	$	65.37
Floor	$	61.64	$	61.76	$	62.06	$	62.06	$	60.00
Short put	$	53.45	$	53.48	$	53.56	$	53.56	$	52.00
Brent call contracts sold:
Volume per day (Bbl) (a)	—		—		—		—		13,000
Price per Bbl:	$	—	$	—	$	—	$	—	$	72.10

______________________

(a)The referenced call contracts were sold in exchange for higher ceiling prices on certain 2020 collar contracts with short puts.

NGL production derivatives. All material physical sales contracts governing the Company's NGL production are tied directly or indirectly to Mont Belvieu, Texas NGL component product prices. The Company uses derivative contracts to manage the NGL component product price volatility. As of December 31, 2019 the Company did not have any NGL derivative contracts outstanding.

Gas production derivatives. All material physical sales contracts governing the Company's gas production are tied directly or indirectly to NYMEX Henry Hub ("HH") gas prices or regional index prices where the gas is sold. The Company uses derivative contracts to manage gas price volatility and basis swap contracts to reduce basis risk between HH prices and actual index prices at which the gas is sold.

Volumes per day associated with outstanding gas derivative contracts as of December 31, 2019 and the weighted average gas prices for those contracts are as follows:


	2020
	First Quarter		Second Quarter		Third Quarter		Fourth Quarter
Swap contracts:
Volume per day (MMBtu) (a)	—		30,000		30,000		10,109
Price per MMBtu	$	—	$	2.41	$	2.41	$	2.41






Basis swap contracts:
Permian Basin index swap volume per day (MMBtu) (a) (b)	—		30,000		30,000		10,109
Price differential ($/MMBtu)	$	—	$	(1.68)	$	(1.68)	$	(1.68)

______________________

(a)Between January 1, 2020 and February 18, 2020, the Company entered into additional (i) swap contracts for 10,000 MMBtu per day of November 2020 through March 2021 production at an average fixed price of $2.46 per MMBtu and (ii) basis swap contracts of 10,000 MMbtu per day of November 2020 through March 2021 production with an average price differential of $1.46 per MMBtu.

(b)The referenced basis swap contracts fix the basis differentials between the index price at which the Company sells its Permian Basin gas and the NYMEX index prices used in swap contracts.

Interest rate derivatives. The Company had no interest rate derivative contracts outstanding as of December 31, 2019, however, between January 1, 2020 and February 18, 2020, the Company entered into interest rate derivative contracts whereby the Company will receive a fixed five-year average treasury rate of 1.39% on a notional amount of $100 million and a fixed 10-year average treasury rate of 1.57% on a notional amount of $300 million.

Contingent consideration. The Company's right to receive contingent consideration in conjunction with the South Texas Divestiture was determined to be a derivative financial instrument that is not designated as a hedging instrument. The contingent consideration of up to $450 million is based on oil and NGL prices during each of the years from 2020 to 2024. See Note 3 and Note 4 for additional information.

Fair value. The fair value of derivative financial instruments not designated as hedging instruments is as follows:


As of December 31, 2019
Type	Consolidated Balance Sheet Location	Fair Value		Gross Amounts Offset in the Consolidated Balance Sheet		Net Fair Value Presented in the Consolidated Balance Sheet
		(in millions)
Assets:
Commodity price derivatives	Derivatives - current	$	32	$	—	$	32


Contingent consideration	Other assets - noncurrent	$	91	$	—	$	91


Liabilities:
Commodity price derivatives	Derivatives - current	$	12	$	—	$	12
Commodity price derivatives	Derivatives - noncurrent	$	8	$	—	$	8


As of December 31, 2018
Type	Consolidated Balance Sheet Location	Fair Value		Gross Amounts Offset in the Consolidated Balance Sheet		Net Fair Value Presented in the Consolidated Balance Sheet
		(in millions)
Assets:
Commodity price derivatives	Derivatives - current	$	59	$	(7)	$	52



Liabilities:
Commodity price derivatives	Derivatives - current	$	34	$	(7)	$	27

Gains and losses recorded on derivative contracts are as follows:


Derivatives Not Designated as Hedging Instruments	Location of Gain/(Loss) Recognized in Earnings on Derivatives	Year Ended December 31,
						2019		2018	2017
		(in millions)
Commodity price derivatives	Derivative gain (loss), net	$	34	$	(292)	$	(99)
Interest rate derivatives	Derivative gain (loss), net	$	—	$	—	$	(1)
Contingent consideration	Interest and other income	$	(45)	$	—	$	—

The Company uses credit and other financial criteria to evaluate the credit standing of, and to select, counterparties to its derivative instruments. Although the Company does not obtain collateral or otherwise secure the fair value of its derivative instruments, associated credit risk is mitigated by the Company's credit risk policies and procedures.

Net derivative assets (liabilities) associated with the Company's open commodity derivatives by counterparty are as follows:


	As of December 31, 2019
	(in millions)






Wells Fargo Bank	$	15
JP Morgan Chase	5
Scotia Bank	3
Royal Bank of Canada	1
Bank of Montreal	(1)






J Aron & Company	(1)

Merrill Lynch	(1)
Nextera Energy Power Marketing	(2)



Citibank	(7)

	$	12

See Note 2 for additional information.