Derivative Activities

6 Months Ended

Jun. 30, 2023

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, three-way collars or swaptions to (1) reduce the effect of price volatility of the commodities we produce and sell and (2) support our annual capital budget, fixed costs 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 gain of $216.8 million at June 30, 2023. These contracts expire monthly through December 2026. The following table sets forth our commodity-based derivative volumes by year as of June 30, 2023, 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 (a)
2023	Swaps	381,658 Mmbtu/day	$	3.52
2023	Collars	256,685 Mmbtu/day					$	3.37	$	4.50
2023	Three-way Collars	140,000 Mmbtu/day			$	2.25	$	3.25	$	4.28
2024	Swaps	304,973 Mmbtu/day	$	4.01
2024	Collars	436,694 Mmbtu/day					$	3.50	$	5.63
2024	Three-way Collars	50,000 Mmbtu/day			$	2.50	$	3.50	$	4.24
2025	Swaps	360,000 Mmbtu/day	$	4.12
2026	Swaps	32,500 Mmbtu/day	$	4.16
Crude Oil
2023	Swaps	5,000 bbls/day	$	71.30
January-September 2024	Collars	832 bbls/day					$	80.00	$	90.12

(a) We sold natural gas swaptions on 90,000 Mmbtu/day for 2025 at a weighted average price of $4.25/Mmbtu. These swaptions expire December 31, 2023.

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 commodity derivatives described above, at June 30, 2023, 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 2026 and include a total volume of 371,577,500 Mmbtu. The fair value of these contracts was a gain of $30.7 million at June 30, 2023.

Divestiture Contingent Consideration

We have the right to receive contingent consideration in conjunction with the sale of our North Louisiana assets in third quarter 2020 that is a derivative financial instrument not designated as a hedging instrument. The remaining contingent consideration of up to $21.0 million is based on future achievement of natural gas and oil prices based on published indexes and realized NGLs prices of the buyer for 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 six months 2023, this fair value has decreased $4.9 million for a fair value of $8.1 million as of June 30, 2023.

Derivative Assets and Liabilities

The combined fair value of derivatives included in the accompanying consolidated balance sheets as of June 30, 2023 and December 31, 2022 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):

		June 30, 2023
		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	$	116,529	$	(3,359	)	$	113,170
	–swaptions		—		(2,492	)		(2,492	)
	–collars		94,885		(2,044	)		92,841
	–three-way collars		10,017		(240	)		9,777
	–basis swaps		47,065		(15,317	)		31,748
Crude oil	–swaps		1,092		(391	)		701
	–collars		2,783		—			2,783
Divestiture contingent consideration			8,140		—			8,140
		$	280,511	$	(23,843	)	$	256,668

		June 30, 2023
		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	$	(3,359	)	$	3,359	$	—
	–swaptions		(2,492	)		2,492		—
	–collars		(2,044	)		2,044		—
	–three-way collars		(240	)		240		—
	–basis swaps		(16,335	)		15,317		(1,018	)
Crude oil	–swaps		(391	)		391		—
		$	(24,861	)	$	23,843	$	(1,018	)

		December 31, 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	–swaps	$	19,438	$	(6,236	)	$	13,202
	–collars		54,222		(45,452	)		8,770
	–three-way collars		12,424		(12,424	)		—
	–basis swaps		25,493		(20,437	)		5,056
Crude oil	–collars		1,807		—			1,807
Divestiture contingent consideration			13,080		—			13,080
		$	126,464	$	(84,549	)	$	41,915

		December 31, 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	$	(115,374	)	$	6,236	$	(109,138	)
	–collars		(72,866	)		45,452		(27,414	)
	–three-way collars		(24,341	)		12,424		(11,917	)
	–basis swaps		(24,972	)		20,437		(4,535	)
Crude oil	–swaps		(13,908	)		—		(13,908	)
		$	(251,461	)	$	84,549	$	(166,912	)

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

	Derivative Fair Value Income (Loss)
	Three Months Ended June 30,						Six Months Ended June 30,
	2023			2022			2023			2022
Commodity swaps	$	43,067		$	(127,949	)	$	252,159		$	(649,304	)
Swaptions		(2,492	)		19,868			(2,492	)		(14,854	)
Three-way collars		5,399			(27,506	)		56,214			(207,432	)
Collars		11,787			(83,252	)		172,358			(315,545	)
Calls		—			—			—			(1,363	)
Basis swaps		66,993			(21,083	)		18,402			1,432
Freight swaps		—			—			—			(33	)
Divestiture contingent consideration		(1,020	)		—			(4,940	)		8,120
Total	$	123,734		$	(239,922	)	$	491,701		$	(1,178,979	)