Derivative Instruments and Hedging Activities

12 Months Ended

Dec. 31, 2019

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Instruments and Hedging Activities

Note 14. Derivative Instruments and Hedging Activities

Objective and Strategies for Using Derivative Instruments   We enter into price hedging arrangements in an effort to mitigate the effects of commodity price volatility and enhance the predictability of cash flows relating to the marketing of a portion of our production. The derivative instruments we use may include variable to fixed price commodity swaps, enhanced swaps, collars and three-way collars, sold calls and sold puts, basis swaps, swaptions and/or put options.

The fixed price swap and collar contracts entitle us (floating price payor) to receive settlement from the counterparty (fixed price payor) for each calculation period in amounts, if any, by which the settlement price for the scheduled trading days applicable for each calculation period is less than the fixed strike price or floor price. We would pay the counterparty if the settlement price for the scheduled trading days applicable for each calculation period is more than the fixed strike price or ceiling price. The amount payable by us, if the floating price is above the fixed or ceiling price, is the product of the notional quantity per calculation period and the excess of the floating price over the fixed or ceiling price in respect of each calculation period. The amount payable by the counterparty, if the floating price is below the fixed or floor price, is the product of the notional quantity per calculation period and the excess of the fixed or floor price over the floating price in respect of each calculation period.

A three-way collar consists of a collar contract combined with a put option contract sold by us with a strike price below the floor price of the collar.  We receive price protection at the purchased put option floor price of the collar if commodity prices are above the sold put option strike price. If commodity prices fall below the sold put option strike price, we receive the cash market price plus the difference between the two put option strike prices. This type of instrument allows us to capture more value in a rising commodity price environment, but limits our benefits in a downward commodity price environment.

A swaption gives counterparties the right, but not the obligation, to enter into swap agreements with us on the option expiration dates.

Sold calls are entered into to receive premiums for establishing a maximum price that would be settled for the notional volumes covered by the respective contracts. Sold puts are entered into to receive premiums for establishing a minimum price that would be settled for the notional volumes covered by basis swap contracts.

While these instruments mitigate the cash flow risk of future reductions in commodity prices, they may also curtail benefits during periods of increasing commodity prices. Additionally, derivative instruments expose us to counterparty credit risk, especially during periods of falling prices. Our commodity derivative instruments are currently with a diversified group of major banks or market participants. We monitor the creditworthiness of these counterparties and our internal hedge policies provide for exposure limits.

Unsettled Commodity Derivative Instruments   As of December 31, 2019, we had entered into the following crude oil derivative instruments:

				Swaps					Collars
Settlement Period	Type of Contract	Index	Bbls per Day	Weighted Average Differential			Weighted Average Fixed Price		Weighted Average Short Put Price		Weighted Average Floor Price		Weighted Average Ceiling Price
2020	Sold Calls	NYMEX WTI	8,000	$	—		$	65.59	$	—	$	—	$	—
2020	Swaps	NYMEX WTI	35,000	—			58.12		—		—		—
2020	Three-Way Collars	NYMEX WTI	30,000	—			—		48.33		57.87		64.27
Jan2020-Jun2020	Swaps	NYMEX WTI	24,000	—			59.54		—		—		—
Jul2020-Dec2020	Call Swaption	NYMEX WTI	11,000	—			58.95		—		—		—
2020	Basis Swaps	(1)	15,000	(5.01		)	—		—		—		—

⁽¹⁾   We have entered into crude oil basis swap contracts in order to establish a fixed amount for the differential between pricing in Midland, Texas, and Cushing, Oklahoma. The weighted average differential represents the amount of reduction to Cushing, Oklahoma, prices for the notional volumes covered by the basis swap contracts.

As of December 31, 2019, we had entered into the following NGL derivative instruments:

				Swaps
Settlement Period	Type of Contract	Index	Bbls per Day	Weighted Average Fixed Price
Apr 2020-Sept 2020	Ethane Swaps	Mont Belvieu	2,000	$	7.77
Apr 2020-Sept 2020	Propane Swaps	Mont Belvieu	5,000	21.04
Apr 2020-Sept 2020	Isobutane Swaps	Mont Belvieu	1,000	25.36
Apr 2020-Sept 2020	Butane Swaps	Mont Belvieu	1,500	24.31

As of December 31, 2019, we had entered into the following natural gas derivative instruments:

				Swaps					Collars
Settlement Period	Type of Contract	Index	MMBtu per Day	Weighted Average Differential			Weighted Average Fixed Price		Weighted Average Short Put Price		Weighted Average Floor Price		Weighted Average Ceiling Price
Apr2020-Dec2020	Swaps	NYMEX HH	90,000	$	—		$	2.60	$	—	$	—	$	—
Apr2020-Oct2020	Three-Way Collars	NYMEX HH	40,000	—			—		2.25		2.70		2.85
2020	Sold Puts	NYMEX HH	90,000	—			—		2.15		—		—
2020	Basis Swaps	CIG (1)	139,000	(0.56		)	—		—		—		—
2020	Basis Swaps	Waha (1)	49,500	(1.05		)	—		—		—		—
2021	Basis Swaps	CIG (1)	60,000	(0.52		)	—		—		—		—
2021	Basis Swaps	Waha (1)	14,000	(0.60		)	—		—		—		—

⁽¹⁾   We have entered into natural gas basis swap contracts in order to establish a fixed amount for the differential between index pricing for Colorado Interstate Gas (CIG) and Waha Hub versus NYMEX Henry Hub (HH). The weighted average differential represents the amount of reduction to NYMEX HH prices for the notional volumes covered by the basis swap contracts.

Fair Value Amounts and Gains and Losses on Derivative Instruments   The fair values of derivative instruments on our consolidated balance sheets were as follows (in millions): 

Asset Derivative Instruments					Liability Derivative Instruments
Balance Sheet Location	December 31, 2019		December 31, 2018		Balance Sheet Location	December 31, 2019		December 31, 2018
Other Current Assets	$	14	$	180	Other Current Liabilities	$	36	$	1
Other Noncurrent Assets	1		—		Other Noncurrent Liabilities	1		26
Total Assets	$	15	$	180	Total Liabilities	$	37	$	27

We estimate the fair values of these instruments using published forward commodity price curves as of the date of the estimate. The discount rate used in the discounted cash flow projections is based on published London Inter-bank Offered Rate (LIBOR) rates, Eurodollar futures rates and interest swap rates. The fair values of commodity derivative instruments in an asset position include a measure of counterparty nonperformance risk, and the fair values of commodity derivative instruments in a liability position include a measure of our own nonperformance risk, each based on the current published credit default swap rates. In addition, for collars, we estimate the option values of the put options sold and the contract floors and ceilings using an option pricing model which considers market volatility, market prices and contract terms. Amounts include the impact of netting clauses within our master agreements that allow us to net cash settle asset and liability positions with the same counterparty.

The effect of derivative instruments on our consolidated statements of operations was as follows:

	Year Ended December 31,
(millions)	2019			2018			2017
Cash (Received) Paid in Settlement of Commodity Derivative Instruments
Crude Oil	$	(10	)	$	162		$	(14	)
Natural Gas	(22		)	(1		)	1
Total Cash (Received) Paid in Settlement of Commodity Derivative Instruments	(32		)	161			(13		)
Non-cash Portion of Loss (Gain) on Commodity Derivative Instruments
Crude Oil	184			(225		)	18
NGLs	(3		)	—			—
Natural Gas	(6		)	1			(68		)
Total Non-cash Portion of Loss (Gain) on Commodity Derivative Instruments	175			(224		)	(50		)
Loss (Gain) on Commodity Derivative Instruments
Crude Oil	174			(63		)	4
NGLs	(3		)	—			—
Natural Gas	(28		)	—			(67		)
Total Loss (Gain) on Commodity Derivative Instruments	$	143		$	(63	)	$	(63	)