XML 26 R14.htm IDEA: XBRL DOCUMENT v3.22.2.2
Derivative Instruments
 9 Months Ended
Sep. 30, 2022
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Instruments Derivative Instruments
Commodity derivative contracts. The Company utilizes derivative financial instruments to manage risks related to changes in crude oil, NGL and natural gas prices. The Company’s crude oil contracts settle monthly based on the average NYMEX WTI. NGL contracts settle monthly based on the average Mont Belvieu propane or Conway propane index prices, as applicable. Natural gas contracts settle monthly based on the average NYMEX Henry Hub natural gas index price (“NYMEX HH”), while natural gas basis swaps settle monthly based on the average fixed differential between NYMEX HH and the Northern Natural Gas Ventura (“NNG Ventura”) index price.
The Company primarily utilizes fixed-price swaps, collars and basis swaps to reduce the volatility of crude oil, NGL and natural gas prices on future expected production. Swaps are designed to establish a fixed-price for the volumes under contract, while collars are designed to establish a minimum price (floor) and a maximum price (ceiling) for the volumes under contract. The Company’s basis swaps are designed to establish a fixed differential between NYMEX and the index price referenced in the contract. The Company may, from time to time, restructure existing derivative contracts or enter into new transactions to effectively modify the terms of current contracts in order to improve the pricing parameters in existing contracts.
All derivative instruments are recorded on the Company’s Condensed Consolidated Balance Sheets as either assets or liabilities measured at fair value (see Note 6—Fair Value Measurements). The Company has not designated any derivative instruments as hedges for accounting purposes and does not enter into such instruments for speculative trading purposes. The Company records the changes in fair value in the other income (expense) section of the Company’s Condensed Consolidated Statements of Operations as a net gain or loss on derivative instruments. Derivative settlements on the Company’s commodity derivative contracts are reflected as investing activities on the Company’s Condensed Consolidated Statements of Cash Flows and represent net cash payments to or receipts from counterparties upon the maturity of a derivative contract.
In connection with the completion of the Merger, the following outstanding commodity derivative contracts were novated to the Company on July 1, 2022:
CommoditySettlement
Period		Derivative
Instrument		VolumesWeighted Average Prices
Fixed-Price SwapsFloorCeiling
  
Crude oil2022Fixed-price swaps1,840,000 Bbl$76.92 
Crude oil2022Two-way collar5,628,000 Bbl$47.20 $57.33 
Crude oil2023Fixed-price swaps1,172,000 Bbl$76.79 
Crude oil2023Two-way collar3,443,500 Bbl$46.75 $58.87 
Natural gas2022Fixed-price swaps4,140,000 MMBtu$3.97 
Natural gas2022Two-way collar10,074,000 MMBtu$2.68 $3.31 
Natural gas2023Fixed-price swaps1,800,000 MMBtu$4.25 
Natural gas2023Two-way collar8,799,000 MMBtu$2.85 $3.57 
Natural gas basis(1)
2022Fixed-price swaps620,000 MMBtu$1.17 
Natural gas basis(1)
2023Fixed-price swaps5,920,000 MMBtu$0.40 
NGL - Propane(2)
2022Fixed-price swaps7,728,000 Gallons$1.07 
NGL - Propane(3)
2022Fixed-price swaps30,912,000 Gallons$1.04 
NGL - Propane(3)
2023Fixed-price swaps7,560,000 Gallons$1.16 

At September 30, 2022, the Company had the following outstanding commodity derivative contracts:
CommoditySettlement
Period		Derivative
Instrument		VolumesWeighted Average Prices
Fixed-Price SwapsFloorCeiling
  
Crude oil2022Two-way collar3,864,000 Bbl$48.13 $60.00 
Crude oil2022Fixed-price swaps2,760,000 Bbl$72.32 
Crude oil2023Two-way collar7,823,500 Bbl$45.77 $62.25 
Crude oil2023Fixed-price swaps6,282,000 Bbl$55.00 
Natural gas2022Two-way collar4,370,000 MMBtu$2.71 $3.41 
Natural gas2022Fixed-price swaps2,760,000 MMBtu$4.19 
Natural gas2023Two-way collar8,799,000 MMBtu$2.84 $3.57 
Natural gas2023Fixed-price swaps1,800,000 MMBtu$4.25 
Natural gas basis(1)
2022Fixed-price swaps620,000 MMBtu$1.17 
Natural gas basis(1)
2023Fixed-price swaps5,920,000 MMBtu$0.40 
NGL - Propane(2)
2022Fixed-price swaps3,864,000 Gallons$1.07 
NGL - Propane(3)
2022Fixed-price swaps15,456,000 Gallons$1.04 
NGL - Propane(3)
2023Fixed-price swaps7,560,000 Gallons$1.16 
__________________ 
(1)    The weighted average price associated with the natural gas basis swaps shown in the tables above represents the average fixed differential to NYMEX HH as stated in the related contracts, which is compared to the NNG Ventura index price for each period. If NYMEX HH combined with the fixed differential as stated in each contract is higher than the NNG Ventura index price at any settlement date, the Company receives the difference. Conversely, if the NNG Ventura index price is higher than NYMEX HH combined with the fixed differential, the Company pays the difference.
(2)    Settled based on the Mont Belvieu propane price.
(3)    Settled based on the Conway propane price.
Transportation derivative contracts. The Company acquired two contracts in the Merger that provide for the transportation of crude oil through a buy/sell structure from North Dakota to either Cushing, Oklahoma or Guernsey, Wyoming. The contracts require the purchase and sale of fixed volumes of crude oil through July 2024 as specified in the agreements. At July 1, 2022, upon the closing of the Merger, the Company determined that these contracts qualified as derivatives and did not elect the “normal purchase normal sale” exclusion. The fair value of these transportation derivative contracts as of July 1, 2022 was estimated to be a liability of $22.0 million. As of September 30, 2022, the estimated fair value of these contracts was $15.1 million, of which $10.4 million was classified as a current derivative liability and $4.7 million was classified as a non-current derivative liability on the Condensed Consolidated Balance Sheet (see Note 6—Fair Value Measurements). The Company records the changes in fair value of these contracts to gathering, processing and transportation expenses on the Company’s Condensed Consolidated Statements of Operations. Settlements on these contracts are reflected as operating activities on the Company’s Condensed Consolidated Statements of Cash Flows and represent cash payments to the counterparties for transportation of crude oil or the net settlement of contract liabilities if the transportation was not utilized, as applicable.
Contingent consideration. The Company bifurcated the Permian Basin Sale Contingent Consideration from the host contract and accounted for it separately at fair value. The fair value of the Permian Basin Sale Contingent Consideration was estimated to be $32.9 million as of the close date of the Permian Basin Sale (defined in Note 10—Divestitures). The Permian Basin Sale Contingent Consideration is marked-to-market each reporting period, with changes in fair value recorded in the other income (expense) section of the Company’s Condensed Consolidated Statements of Operations as a net gain or loss on derivative instruments. As of September 30, 2022, the estimated fair value of the Permian Basin Sale Contingent Consideration was $52.1 million and was classified as a non-current derivative asset on the Condensed Consolidated Balance Sheet. See Note 6—Fair Value Measurements and Note 10—Divestitures for additional information.
The following table summarizes the location and amounts of gains and losses from the Company’s derivative instruments recorded in the Company’s Condensed Consolidated Statements of Operations for the periods presented:
Three Months Ended September 30,Nine Months Ended September 30,
Derivative InstrumentStatements of Operations Location2022202120222021
 (In thousands)
Commodity price hedges (commodity derivative contracts)Net gain (loss) on derivative instruments$344,379 $(108,647)$(136,066)$(557,199)
Buy/sell transportation contracts (commodity derivative contracts)
Gathering, processing and transportation expenses(1)
6,939 — 6,939 — 
Embedded commodity derivative (contingent consideration)Net gain (loss) on derivative instruments(6,970)6,857 7,300 6,857 
Embedded commodity derivative (contingent consideration)Gain on sale of assets— — — 32,860 
__________________ 
(1)    The change in the fair value of the transportation derivative contracts was recorded as a gain in gathering, processing and transportation expenses for the three and nine months ended September 30, 2022.

In accordance with the FASB’s authoritative guidance on disclosures about offsetting assets and liabilities, the Company is required to disclose both gross and net information about instruments and transactions eligible for offset in the statement of financial position as well as instruments and transactions subject to an agreement similar to a master netting agreement. The Company’s derivative instruments are presented as assets and liabilities on a net basis by counterparty, as all counterparty contracts provide for net settlement. No margin or collateral balances are deposited with counterparties, and as such, gross amounts are offset to determine the net amounts presented in the Company’s Condensed Consolidated Balance Sheets.
The following table summarizes the location and fair value of all outstanding derivative instruments recorded in the Company’s Condensed Consolidated Balance Sheets:
September 30, 2022
Derivative InstrumentBalance Sheet LocationGross AmountGross Amount OffsetNet Amount
(In thousands)
Derivatives assets:
Commodity derivativesDerivative instruments — current assets$28,137 $(25,076)$3,061 
Commodity derivativesDerivative instruments — non-current assets4,324 (4,324)— 
Contingent considerationDerivative instruments — non-current assets52,110 — 52,110 
Total derivatives assets$84,571 $(29,400)$55,171 
Derivatives liabilities:
Commodity derivatives(1)
Derivative instruments — current liabilities$381,318 $(25,076)$356,242 
Commodity derivatives (buy/sell transportation contracts)Derivative instruments — current liabilities10,363 — 10,363 
Commodity derivativesDerivative instruments — non-current liabilities37,499 (4,324)33,175 
Commodity derivatives (buy/sell transportation contracts)Derivative instruments — non-current liabilities4,723 — 4,723 
Total derivatives liabilities$433,903 $(29,400)$404,503 
December 31, 2021
Derivative InstrumentBalance Sheet LocationGross AmountGross Amount OffsetNet Amount
(In thousands)
Derivatives assets:
Commodity derivativesDerivative instruments — non-current assets$55 $— $55 
Contingent considerationDerivative instruments — non-current assets44,810 — 44,810 
Total derivatives assets$44,865 $— $44,865 
Derivatives liabilities:
Commodity derivativesDerivative instruments — current liabilities$96,172 $(6,725)$89,447 
Commodity derivativesDerivative instruments — non-current liabilities133,655 (18,373)115,282 
Total derivatives liabilities$229,827 $(25,098)$204,729 
__________________ 
(1)     Includes $39.6 million of commodity derivative liabilities paid in October 2022.