DERIVATIVES

12 Months Ended

Dec. 31, 2019

Derivative Instruments and Hedging Activities Disclosure [Abstract]

DERIVATIVES

DERIVATIVES

All derivative financial instruments are recorded at fair value in the accompanying balance sheet. The Company has not designated its derivative instruments as hedges for accounting purposes and, as a result, marks its derivative instruments to fair value and recognizes the cash and non-cash changes in fair value in the consolidated statements of operations under the caption “Gain (loss) on derivative instruments, net.”

Commodity Contracts

The Company has used fixed price swap contracts, fixed price basis swap contracts, double-up swap contracts and three-way costless collars with corresponding put, short put and call options to reduce price volatility associated with certain of its oil and natural gas sales. With respect to the Company’s fixed price swap contracts and fixed price basis swap contracts, the counterparty is required to make a payment to the Company if the settlement price for any settlement period is less than the swap or basis price, and the Company is required to make a payment to the counterparty if the settlement price for any settlement period is greater than the swap or basis price. The Company has fixed price basis swaps for the spread between the WTI Magellan East Houston oil price and the WTI Cushing oil price and for the spread between the Henry Hub natural gas price and the Waha Hub natural gas price. The Company also utilizes double-up swap contracts for a portion of its natural gas sales. These contracts include a traditional fixed price swap in addition to a call option at the same quantity and price, providing the counterparty the option to double the volume in the swap contract should the monthly settlement price exceed the fixed price contracted upon.

Under the Company’s costless collar contracts, a three-way collar is a combination of three options: a ceiling call, a floor put, and a short put. The counterparty is required to make a payment to the Company if the settlement price for any settlement period is less than the ceiling price to a maximum of the difference between the floor price and the short put price.  The Company is required to make a payment to the counterparty if the settlement price for any settlement period is greater than the ceiling price. If the settlement price is between the floor and the ceiling price, there is no payment required.

The Company’s derivative contracts are based upon reported settlement prices on commodity exchanges, with crude oil derivative settlements based on New York Mercantile Exchange West Texas Intermediate pricing (Cushing and Magellan East Houston) and ICE Brent pricing, and with natural gas derivative settlements based on the New York Mercantile Exchange Henry Hub and Waha Hub pricing and liquids derivative settlements based on Mt. Belvieu pricing.

By using derivative instruments to economically hedge exposure to changes in commodity prices, the Company exposes itself to credit risk and market risk. Credit risk is the failure of the counterparty to perform under the terms of the derivative contract. When the fair value of a derivative contract is positive, the counterparty owes the Company, which creates credit risk. The Company’s counterparties are participants in the secured second amended and restated credit agreement, which is secured by substantially all of the assets of the guarantor subsidiaries; therefore, the Company is not required to post any collateral. The Company does not require collateral from its counterparties. The Company has entered into derivative instruments only with counterparties that are also lenders in our credit facility and have been deemed an acceptable credit risk.

As of December 31, 2019, the Company had the following outstanding derivative contracts. When aggregating multiple contracts, the weighted average contract price is disclosed:

	2020				2021
	Volume (Bbls/MMBtu)	Fixed Price Swap (per Bbl/MMBtu)			Volume (Bbls/MMBtu)	Fixed Price Swap (per Bbl/MMBtu)
Oil Swaps - WTI Cushing	4,754,000	$	57.78		0	$	—
Oil Swaps - WTI Magellan East Houston	2,196,000	$	62.80		0	$	—
Oil Swaps - BRENT	4,569,000	$	61.84		0	$	—
Oil Basis Swaps - WTI Cushing	13,860,000	$	(1.20	)	0	$	—
Oil Rolling Hedge - WTI Cushing	6,700,000	$	0.44		0	$	—
Natural Gas Swaps - Henry Hub	10,050,000	$	2.55		0	$	—
Natural Gas Swaps - Waha Hub	16,750,000	$	1.67		0	$	—
Natural Gas Basis Swaps - Waha Hub	23,450,000	$	(1.19	)	54,750,000	$	(0.70	)

	2020
Oil Three-Way Collars	WTI Cushing		Brent		WTI Magellan East Houston
Volume (Bbls)	6,842,200		11,803,500		5,124,000
Short put price (per Bbl)	$	44.20	$	50.00	$	50.00
Floor price (per Bbl)	$	54.20	$	60.00	$	60.00
Ceiling price (per Bbl)	$	65.42	$	70.86	$	68.61

Gas Swap Double-Up - Waha Hub	2020
Volume (Mcf)	10,050,000
Swap price (per Mcf)	$	1.70
Option price	$	1.70

Interest Rate Swaps and Treasury Locks

The Company has used interest rate swaps and treasury locks to reduce the Company’s exposure to variable rate interest payments associated with the Company’s revolving credit facility. The interest rate swaps and treasury locks have not been designated as hedging instruments and as a result, the Company recognizes all changes in fair value immediately in earnings. Effective November 2019, the Company terminated all of its interest rate swaps and treasury locks which resulted in a gain of $43 million, net of fees.

Balance sheet offsetting of derivative assets and liabilities

The fair value of swaps is generally determined using established index prices and other sources which are based upon, among other things, futures prices and time to maturity. These fair values are recorded by netting asset and liability positions that are with the same counterparty and are subject to contractual terms which provide for net settlement.

The following tables present the gross amounts of recognized derivative assets and liabilities, the amounts offset under master netting arrangements with counterparties and the resulting net amounts presented in the Company’s consolidated balance sheets as of December 31, 2019 and 2018:

	December 31,
	2019			2018
	(in millions)
Gross amounts of assets presented in the Consolidated Balance Sheet	$	71		$	233
Amounts netted in the Consolidated Balance Sheet	(18		)	(2		)
Net amounts of assets presented in the Consolidated Balance Sheet	$	53		$	231
Gross amounts of liabilities presented in the Consolidated Balance Sheet	$	45		$	15
Amounts netted in the Consolidated Balance Sheet	(18		)	—
Net amounts of liabilities presented in the Consolidated Balance Sheet	$	27		$	15

The net amounts are classified as current or noncurrent based on their anticipated settlement dates. The net fair value of the Company’s derivative assets and liabilities and their locations on the consolidated balance sheet are as follows:

	December 31,
	2019		2018
	(in millions)
Current assets: derivative instruments	$	46	$	231
Noncurrent assets: derivative instruments	7		—
Total assets	$	53	$	231
Current liabilities: derivative instruments	$	27	$	—
Noncurrent liabilities: derivative instruments	—		15
Total liabilities	$	27	$	15

None of the Company’s derivatives have been designated as hedges. As such, all changes in fair value are immediately recognized in earnings. The following table summarizes the gains and losses on derivative instruments included in the consolidated statements of operations:

	Year Ended December 31,
	2019			2018			2017
	(in thousands)
Change in fair value of open non-hedge derivative instruments:	$	(188	)	$	222		$	(84	)
Gain (loss) on settlement of non-hedge derivative instruments:	80			(121		)	6
Gain (loss) on derivative instruments	$	(108	)	$	101		$	(78	)