Derivative Financial Instruments

9 Months Ended

Sep. 30, 2020

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, and (ii) support the Company's capital budgeting and expenditure plans. 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 highly 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 its areas of production. To diversify the oil prices it receives, the Company enters into third party purchase transactions in its area of production and separate third party transactions for the sales of such purchased oil to Gulf Coast refineries or international export markets at prices that are highly correlated to Brent oil prices. As a result, the Company generally uses Brent derivative contracts to manage future oil price volatility.

The Company's outstanding oil derivative contracts as of September 30, 2020 and the weighted average oil prices per barrel for those contracts are as follows:


	2020		Year Ending December 31, 2021
	Fourth Quarter
Brent collar contracts with short puts: (a)
Volume per day (Bbl)	115,500		—
Price per Bbl:
Ceiling	$	69.78	$	—
Floor	$	62.06	$	—
Short put	$	53.56	$	—
Brent swap contracts:
Volume per day (Bbl)	155,200		—
Price per Bbl	$	36.47	$	—
Brent call contracts sold:
Volume per Bbl (b)	—		20,000
Price per Bbl	$	—	$	69.74
Brent collar contracts with short puts:
Volume per day (Bbl) (c)	30,000		96,000
Price per Bbl:
Ceiling	$	43.09	$	50.61
Floor	$	34.83	$	44.79
Short put	$	24.83	$	34.88

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(a)Represents collar contracts with short puts that were entered into prior to March 2020. During and subsequent to March 2020, the Company entered into incremental swap contracts and collar contracts with short puts to provide additional downside price protection for its 2020 volumes.

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

(c)Subsequent to September 30, 2020, the Company liquidated certain 2021 Brent collar contracts with short puts totaling 6,000 Bbls per day for cash proceeds of $241 thousand.

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 volatility of NGL component product prices. As of September 30, 2020, 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.

The Company's outstanding gas derivative contracts as of September 30, 2020 and the weighted average gas prices per MMBtu for those contracts are as follows:


	2020		Year Ending December 31, 2021
	Fourth Quarter
NYMEX swap contracts:
Volume per day (MMBtu)	16,739		152,466
Price per MMBtu	$	2.43	$	2.66


NYMEX collar contracts:
Volume per day (MMBtu)	—		150,000
Price per MMBtu:
Ceiling	$	—	$	3.15
Floor	$	—	$	2.50
Basis swap contracts:
Permian Basin index swap volume per day (MMBtu) (a)	16,739		2,466
Price differential ($/MMBtu)	$	(1.59)	$	(1.46)

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(a)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.

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 was not designated as a hedging instrument. Prior to its settlement in July 2020, the contingent consideration valuation was based on forecasted oil and NGL prices during each of the five years from 2020 to 2024. See Note 3, Note 4 and Note 13 for additional information.

Derivative accounting. The Company's derivatives are accounted for as non-hedge derivatives and therefore all changes in the fair values of its derivative contracts are recognized as gains or losses in the earnings of the periods in which they occur. The Company enters into commodity price derivatives under master netting arrangements, which, in an event of default, allows the Company to offset payables to and receivables from the defaulting counterparty.

Noncash gains and losses associated with the Company's commodity price derivatives and contingent consideration are separately presented in operating activities within the consolidated statements of cash flows.

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


As of September 30, 2020
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	$	49	$	—	$	49


Liabilities:
Commodity price derivatives	Derivatives - current	$	51	$	—	$	51
Commodity price derivatives	Derivatives - noncurrent	$	14	$	—	$	14


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

Gains and losses on derivative contracts are as follows:


Derivatives Not Designated as Hedging Instruments	Location of Gain (Loss) Recognized in Earnings on Derivatives	Three Months Ended September 30,				Nine Months Ended September 30,
		2020		2019		2020		2019

		(in millions)


Commodity price derivatives	Derivative gain (loss), net	$	(57)	$	121	$	82	$	150
Interest rate derivatives	Derivative gain (loss), net	$	—	$	—	$	(22)	$	—
Contingent consideration	Interest and other income (loss), net	$	22	$	(48)	$	(42)	$	(61)

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.