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Derivative Activities
 9 Months Ended
Sep. 30, 2022
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Activities

(10) DERIVATIVE ACTIVITIES

We use commodity-based derivative contracts to manage exposure to commodity price fluctuations. We do not enter into these arrangements for speculative or trading purposes. We utilize commodity swaps, collars or three-way collars to (1) reduce the effect of price volatility of the commodities we produce and sell and (2) support our annual capital budget and investment plans. The fair value of our derivative contracts, represented by the estimated amount that would be realized upon termination, based on a comparison of the contract price and a reference price, generally the New York Mercantile Exchange (NYMEX) for natural gas and crude oil or Mont Belvieu for NGLs, approximated a net loss of $816.0 million at September 30, 2022. These contracts expire monthly through December 2024. The following table sets forth our commodity-based derivative volumes by year as of September 30, 2022, excluding our basis swaps and divestiture contingent consideration which are discussed separately below:

 

 

Period

 

Contract Type

 

Volume Hedged

 

Weighted Average Hedge Price

 

 

 

 

 

 

Swap

 

Sold Put

 

Floor

 

Ceiling

Natural Gas

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2022

 

Swaps

 

490,000 Mmbtu/day

 

$

3.08

 

 

 

 

 

 

 

 

2022

 

Collars

 

174,783 Mmbtu/day

 

 

 

 

 

 

$

4.02

 

$

4.74

2022

 

Three-way Collars

 

293,261 Mmbtu/day

 

 

 

$

2.91

 

$

3.63

 

$

4.65

2023

 

Swaps

 

360,000 Mmbtu/day

 

$

3.35

 

 

 

 

 

 

 

 

2023

 

Collars

 

275,589 Mmbtu/day

 

 

 

 

 

 

$

3.59

 

$

4.77

2023

 

Three-way Collars

 

149,863 Mmbtu/day

 

 

 

$

2.28

 

$

3.30

 

$

4.28

2024

 

Collars

 

469,235 Mmbtu/day

 

 

 

 

 

 

$

3.55

 

$

5.51

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Crude Oil

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2022

 

Swaps

 

6,500 bbls/day

 

$

62.20

 

 

 

 

 

 

 

 

2023

 

Swaps

 

5,123 bbls/day

 

$

71.39

 

 

 

 

 

 

 

 

January-September 2024

 

Collars

 

832 bbls/day

 

 

 

 

 

 

$

80.00

 

$

90.12

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NGLs (C2-Ethane)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

October 2022

 

Swaps

 

4,000 bbls/day

 

$

0.64/gallon

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NGLs (C5-Natural Gasoline)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2022

 

Swaps

 

1,500 bbls/day

 

$

1.98/gallon

 

 

 

 

 

 

 

 

2022

 

Collars

 

2,000 bbls/day

 

 

 

 

 

 

$

1.89/gallon

 

$

2.02/gallon

 

 

Every derivative instrument is required to be recorded on the balance sheet as either an asset or a liability measured at its fair value. We recognize all changes in fair value of these derivatives as earnings in derivative fair value income or loss in the periods in which they occur.

Basis Swap Contracts

In addition to the swaps and collars described above, at September 30, 2022, we had natural gas basis swap contracts which lock in the differential between NYMEX Henry Hub and certain of our physical pricing indices. These contracts settle monthly through December 2025 and include a total volume of 232,425,000 Mmbtu. The fair value of these contracts was a gain of $23.8 million at September 30, 2022.

Divestiture Contingent Consideration

In addition to the derivatives described above, our right to receive contingent consideration in conjunction with the sale of our North Louisiana assets was determined to be a derivative financial instrument that is not designated as a hedging instrument. The remaining contingent consideration of up to $45.5 million is based on future achievement of natural gas and oil prices based on published indexes and realized NGLs prices of the buyer for the years 2022 and 2023. All changes in the fair value are recognized as a gain or loss in earnings in the period they occur in derivative fair value income or loss in our consolidated statements of operations. For first nine months 2022, this fair value has increased $7.8 million for a fair value of $34.4 million as of September 30, 2022.

Derivative Assets and Liabilities

The combined fair value of derivatives included in the accompanying consolidated balance sheets as of September 30, 2022 and December 31, 2021 is summarized below. The assets and liabilities are netted where derivatives with both gain and loss positions are held by a single counterparty and we have master netting arrangements. The tables below provide additional information relating to our master netting arrangements with our derivative counterparties (in thousands):

 

 

 

 

September 30, 2022

 

 

 

 

Gross
Amounts of
Recognized
Assets

 

 

Gross
Amounts
Offset in the
Balance Sheet

 

 

Net Amounts of
Assets
Presented in the
Balance Sheet

 

Derivative assets:

 

 

 

 

 

 

 

 

 

 

Natural gas

–collars

 

$

11,527

 

 

$

(11,527

)

 

$

—

 

 

–three-way collars

 

 

702

 

 

 

(702

)

 

 

—

 

 

–basis swaps

 

 

44,708

 

 

 

(33,551

)

 

 

11,157

 

Crude oil

–swaps

 

 

1,060

 

 

 

(1,060

)

 

 

—

 

 

–collars

 

 

3,123

 

 

 

(2,514

)

 

 

609

 

NGLs

–C2 ethane swaps

 

 

1,208

 

 

 

(1,208

)

 

 

—

 

 

–C5 natural gasoline swaps

 

 

2,501

 

 

 

—

 

 

 

2,501

 

 

–C5 natural gasoline collars

 

 

2,686

 

 

 

(591

)

 

 

2,095

 

Divestiture contingent consideration

 

 

34,410

 

 

 

—

 

 

 

34,410

 

 

 

 

$

101,925

 

 

$

(51,153

)

 

$

50,772

 

 

 

 

 

September 30, 2022

 

 

 

 

Gross
Amounts of
Recognized
(Liabilities)

 

 

Gross
Amounts
Offset in the
Balance Sheet

 

 

Net Amounts of
(Liabilities)
Presented in the
Balance Sheet

 

Derivative (liabilities):

 

 

 

 

 

 

 

 

 

Natural gas

–swaps

 

$

(432,143

)

 

$

—

 

 

$

(432,143

)

 

–collars

 

 

(236,803

)

 

 

11,527

 

 

 

(225,276

)

 

–three-way collars

 

 

(157,775

)

 

 

702

 

 

 

(157,073

)

 

–basis swaps

 

 

(20,930

)

 

 

33,551

 

 

 

12,621

 

Crude oil

–swaps

 

 

(12,082

)

 

 

1,060

 

 

 

(11,022

)

 

–collars

 

 

—

 

 

 

2,514

 

 

 

2,514

 

NGLs

–C2 ethane swaps

 

 

—

 

 

 

1,208

 

 

 

1,208

 

 

–C5 natural gasoline collars

 

 

—

 

 

 

591

 

 

 

591

 

 

 

 

$

(859,733

)

 

$

51,153

 

 

$

(808,580

)

 

 

 

 

 

December 31, 2021

 

 

 

 

Gross
Amounts of
Recognized
Assets

 

 

Gross
Amounts
Offset in the
Balance Sheet

 

 

Net Amounts of
Assets
Presented in the
Balance Sheet

 

Derivative assets:

 

 

 

 

 

 

 

 

 

 

Natural gas

–swaps

 

$

22,491

 

 

$

(18,111

)

 

$

4,380

 

 

–collars

 

 

12,378

 

 

 

(8,600

)

 

 

3,778

 

 

–three-way collars

 

 

12,234

 

 

 

(8,449

)

 

 

3,785

 

 

–basis swaps

 

 

18,092

 

 

 

(10,487

)

 

 

7,605

 

Crude oil

–swaps

 

 

368

 

 

 

(2,153

)

 

 

(1,785

)

NGLs

–C3 propane spread

 

 

4,153

 

 

 

(4,153

)

 

 

—

 

 

–C5 natural gasoline swaps

 

 

266

 

 

 

(363

)

 

 

(97

)

 

–C5 natural gasoline collars

 

 

221

 

 

 

(221

)

 

 

—

 

Freight

–swaps

 

 

114

 

 

 

(81

)

 

 

33

 

Divestiture contingent consideration

 

 

26,640

 

 

 

—

 

 

 

26,640

 

 

 

 

$

96,957

 

 

$

(52,618

)

 

$

44,339

 

 

 

 

 

 

 

December 31, 2021

 

 

 

 

Gross
Amounts of
Recognized (Liabilities)

 

 

Gross
Amounts
Offset in the
Balance Sheet

 

 

Net Amounts of
(Liabilities)
Presented in the
Balance Sheet

 

Derivative (liabilities):

 

 

 

 

 

 

 

 

 

 

Natural gas

–swaps

 

$

(121,759

)

 

$

18,111

 

 

$

(103,648

)

 

–swaptions

 

 

(11,149

)

 

 

—

 

 

 

(11,149

)

 

–collars

 

 

(16,579

)

 

 

8,600

 

 

 

(7,979

)

 

–three-way collars

 

 

(37,166

)

 

 

8,449

 

 

 

(28,717

)

 

–calls

 

 

(61

)

 

 

—

 

 

 

(61

)

 

–basis swaps

 

 

(2,064

)

 

 

10,487

 

 

 

8,423

 

Crude oil

–swaps

 

 

(27,252

)

 

 

2,153

 

 

 

(25,099

)

NGLs

–C3 propane spread

 

 

(4,030

)

 

 

4,153

 

 

 

123

 

 

–C5 natural gasoline swaps

 

 

(2,048

)

 

 

363

 

 

 

(1,685

)

 

–C5 natural gasoline collars

 

 

(1,493

)

 

 

221

 

 

 

(1,272

)

Freight

–swaps

 

 

—

 

 

 

81

 

 

 

81

 

 

 

 

$

(223,601

)

 

$

52,618

 

 

$

(170,983

)

 

 

The effects of our derivatives on our consolidated statements of operations are summarized below (in thousands):

 

 

 

Derivative Fair Value (Loss) Income

 

 

 

Three Months Ended
September 30,

 

 

Nine Months Ended
September 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Commodity swaps

 

$

(241,437

)

 

$

(332,855

)

 

$

(890,741

)

 

$

(558,186

)

Swaptions

 

 

26,003

 

 

 

(33,718

)

 

 

11,149

 

 

 

(50,329

)

Three-way collars

 

 

(117,151

)

 

 

(173,344

)

 

 

(324,583

)

 

 

(226,176

)

Collars

 

 

(161,739

)

 

 

(106,340

)

 

 

(477,284

)

 

 

(158,562

)

Calls

 

 

—

 

 

 

(10,018

)

 

 

(1,363

)

 

 

(10,793

)

Basis swaps

 

 

36,966

 

 

 

(8,469

)

 

 

38,398

 

 

 

11,054

 

Freight swaps

 

 

—

 

 

 

(346

)

 

 

(33

)

 

 

(1,050

)

Divestiture contingent consideration

 

 

(350

)

 

 

12,870

 

 

 

7,770

 

 

 

34,260

 

Total

 

$

(457,708

)

 

$

(652,220

)

 

$

(1,636,687

)

 

$

(959,782

)