The Company's derivatives are accounted for as non-hedge derivatives and 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.

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, WTI oil prices. As a result, the Company periodically enters into basis swap contracts to reduce basis risk between WTI index prices and Midland index prices at which the oil is sold.

Volumes per day associated with outstanding oil basis derivative contracts, as of September 30, 2022, and the weighted average oil price differential for those contracts are as follows:

(a)The referenced basis swap contracts fix the basis differentials between the index price at which the Company sells a portion of its Midland Basin oil and the WTI index price.

Additionally, as of September 30, 2022, the Company has outstanding oil derivative contracts for 3,000 Bbls per day of Brent/WTI basis swaps for January 2024 through December 2024. The basis swap contracts fix the basis differential between the WTI index price (the price at which the Company buys Midland Basin oil for transport to the Gulf Coast) and the Brent index price (the price at which a portion of the Midland Basin purchased oil is sold in the Gulf Coast market) at a weighted average differential of $4.33.

Gas production derivatives. All material physical sales contracts governing the Company's gas production are tied directly or indirectly to NYMEX HH gas prices or regional index prices (e.g. WAHA, SoCal and Houston Ship Channel) where the gas is sold. To diversify the gas prices it receives to international market prices, the Company sells a portion of its gas production at a price correlated to the Dutch TTF index price. 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 September 30, 2022, and the weighted average gas prices for those contracts are as follows:

Marketing derivatives. The Company uses marketing derivatives to diversify its oil pricing to Gulf Coast and international markets. As of September 30, 2022, the Company's marketing derivatives reflect long-term marketing contracts whereby the Company agreed to purchase and simultaneously sell barrels of oil at an oil terminal in Midland, Texas.

In October 2019, the Company agreed to purchase and simultaneously sell 50 thousand barrels of oil per day beginning January 1, 2021 and ending December 31, 2026.

In April 2022, the Company agreed to purchase and simultaneously sell (i) 40 thousand barrels of oil per day beginning May 1, 2022 and ending April 30, 2027 and (ii) 30 thousand barrels of oil per day beginning August 1, 2022 and ending July 31, 2027.

The price the Company pays to purchase the oil volumes under the purchase contracts is based on a Midland WTI price and the price the Company receives for the oil volumes sold is a WASP that a non-affiliated counterparty receives for selling oil through a Gulf Coast storage and export facility at prices that are highly correlated with Brent oil prices during the same month of the purchase. Based on the form of the long-term marketing contracts, the Company accounts for the contracts as derivative instruments not designated as hedges. See Note 4 for additional information.

Conversion option derivatives. The Company's conversion option derivatives represent the change in the cash settlement obligation that occurs during the Settlement Periods related to conversion options exercised by certain holders of the Convertible Notes. For the nine months ended September 30, 2022, the conversion options attributable to $285 million of the Company's carrying value of its Convertible Notes were exercised by the holders of the notes, of which $45 million of the carrying value remained in the Settlement Period as of September 30, 2022. See Note 4 and Note 7 for additional information.

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


As of September 30, 2022
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:




Marketing derivatives	Other assets - noncurrent	$	81	$	—	$	81
Liabilities:
Commodity price derivatives	Derivatives - current	$	222	$	—	$	222
Marketing derivatives	Derivatives - current	$	82	$	—	$	82

Commodity price derivatives	Derivatives - noncurrent	$	1	$	—	$	1


As of December 31, 2021
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)



Liabilities:
Commodity price derivatives	Derivatives - current	$	486	$	—	$	486
Marketing derivatives	Derivatives - current	$	52	$	—	$	52

Marketing derivatives	Derivatives - noncurrent	$	25	$	—	$	25

Fair value. Gains and losses recorded to net derivative gain (loss) in the consolidated statements of operations related to derivative financial instruments not designated as hedging instruments are as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
	(in millions)
Commodity price derivatives:
Noncash derivative gain (loss), net	$	59	$	(10)	$	20	$	(639)
Cash payments on settled derivatives, net (a)	(121)		(486)		(252)		(1,357)
Total commodity derivative loss, net	(62)		(496)		(232)		(1,996)
Marketing derivatives:
Noncash derivative gain, net	99		6		75		3
Cash payments on settled derivatives, net	(18)		(11)		(47)		(31)
Total marketing derivative gain (loss), net	81		(5)		28		(28)
Conversion option derivatives:
Noncash derivative loss, net	(23)		—		—		—
Cash receipts on settled derivatives, net	17		—		17		—
Total conversion option derivative gain (loss), net	(6)		—		17		—
Derivative gain (loss), net	$	13	$	(501)	$	(187)	$	(2,024)

_____________________

(a)Excludes cash payments of $83 million and $244 million, during the three and nine months ended September 30, 2022, respectively, related to entering into equal and offsetting oil and gas commodity derivative trades in the fourth quarter of 2021, which had the net effect of eliminating certain of the Company's 2022 derivative obligations. Includes the early settlement of certain of the Company's commodity derivative contracts for cash payments of $13 million during the nine months ended September 30, 2021.