DERIVATIVES AND RISK MANAGEMENT

9 Months Ended

Sep. 30, 2022

Derivative Instruments and Hedging Activities Disclosure [Abstract]

The Company is exposed to volatility in market prices and basis differentials for natural gas, oil and NGLs which impacts the predictability of its cash flows related to the sale of those commodities. These risks are managed by the Company’s use of certain derivative financial instruments. As of September 30, 2022, the Company’s derivative financial instruments consisted of fixed price swaps, two-way costless collars, three-way costless collars, basis swaps, call options, swaptions and interest rate swaps. A description of the Company’s derivative financial instruments is provided below:


Fixed price swaps			If the Company sells a fixed price swap, the Company receives a fixed price for the contract, and pays a floating market price to the counterparty. If the Company purchases a fixed price swap, the Company receives a floating market price for the contract and pays a fixed price to the counterparty.

Two-way costless collars			Arrangements that contain a fixed floor price (“purchased put option”) and a fixed ceiling price (“sold call option”) based on an index price which, in aggregate, have no net cost. At the contract settlement date, (1) if the index price is higher than the ceiling price, the Company pays the counterparty the difference between the index price and ceiling price, (2) if the index price is between the floor and ceiling prices, no payments are due from either party, and (3) if the index price is below the floor price, the Company will receive the difference between the floor price and the index price.

Three-way costless collars			Arrangements that contain a purchased put option, a sold call option and a sold put option based on an index price that, in aggregate, have no net cost. At the contract settlement date, (1) if the index price is higher than the sold call strike price, the Company pays the counterparty the difference between the index price and sold call strike price, (2) if the index price is between the purchased put strike price and the sold call strike price, no payments are due from either party, (3) if the index price is between the sold put strike price and the purchased put strike price, the Company will receive the difference between the purchased put strike price and the index price, and (4) if the index price is below the sold put strike price, the Company will receive the difference between the purchased put strike price and the sold put strike price.

Basis swaps			Arrangements that guarantee a price differential for natural gas from a specified delivery point. If the Company sells a basis swap, the Company receives a payment from the counterparty if the price differential is greater than the stated terms of the contract and pays the counterparty if the price differential is less than the stated terms of the contract. If the Company purchases a basis swap, the Company pays the counterparty if the price differential is greater than the stated terms of the contract and receives a payment from the counterparty if the price differential is less than the stated terms of the contract.



Options (Calls and Puts)			The Company purchases and sells options in exchange for premiums. If the Company purchases a call option, the Company receives from the counterparty the excess (if any) of the market price over the strike price of the call option at the time of settlement, but if the market price is below the call’s strike price, no payment is due from either party. If the Company sells a call option, the Company pays the counterparty the excess (if any) of the market price over the strike price of the call option at the time of settlement, but if the market price is below the call’s strike price, no payment is due from either party. If the Company purchases a put option, the Company receives from the counterparty the excess (if any) of the strike price over the market price of the put option at the time of settlement, but if the market price is above the put’s strike price, no payment is due from either party. If the Company sells a put option, the Company pays the counterparty the excess (if any) of the strike price over the market price of the put option at the time of settlement, but if the market price is above the put’s strike price, no payment is due from either party.

Index swaps			Natural gas index swaps are used to manage the Company’s exposure to volatility in daily cash market pricing. When the Company sells an index swap, the Company pays an amount equal to the average of the daily index price for a given month at a specified location and receives a first of month index price based on the same location.


Swaptions			Instruments that refer to an option to enter into a fixed price swap. In exchange for an option premium, the purchaser gains the right but not the obligation to enter a specified swap agreement with the issuer for specified future dates. If the Company sells a swaption, the counterparty has the right to enter into a fixed price swap wherein the Company receives a fixed price for the contract and pays a floating market price to the counterparty. If the Company purchases a swaption, the Company has the right to enter into a fixed price swap wherein the Company receives a floating market price for the contract and pays a fixed price to the counterparty.

Interest rate swaps			Interest rate swaps are used to fix or float interest rates on existing or anticipated indebtedness. The purpose of these instruments is to manage the Company’s existing or anticipated exposure to unfavorable interest rate changes.

The Company contracts with counterparties for its derivative instruments that it believes are creditworthy at the time the transactions are entered into, and the Company actively monitors the credit ratings and credit default swap rates of these counterparties where applicable. However, there can be no assurance that a counterparty will be able to meet its obligations to the Company. The Company presents its derivatives position on a gross basis and does not net the asset and liability positions.

The following tables provide information about the Company’s financial instruments that are sensitive to changes in commodity prices and that are used to protect the Company’s exposure. None of the financial instruments below are designated for hedge accounting treatment. The tables present the notional amount, the weighted average contract prices and the fair value by expected maturity dates as of September 30, 2022:


Financial Protection on Production
		Weighted Average Price per MMBtu
	Volume (Bcf)	Swaps		Sold Puts		Purchased Puts		Sold Calls		Basis Differential		Fair Value at September 30, 2022 (in millions)
Natural Gas
2022
Fixed price swaps	207	$	3.04	$	—	$	—	$	—	$	—	$	(798)
Two-way costless collars	18	—		—		2.47		2.89		—		(73)
Three-way costless collars	92	—		2.03		2.48		2.88		—		(368)
Total	317											$	(1,239)
2023
Fixed price swaps	504	$	3.08	$	—	$	—	$	—	$	—	$	(1,152)
Two-way costless collars	219	—		—		3.03		3.55		—		(413)
Three-way costless collars	215	—		2.09		2.54		3.00		—		(557)
Total	938											$	(2,122)
2024
Fixed price swaps	224	$	2.96	$	—	$	—	$	—	$	—	$	(372)
Two-way costless collars	44	—		—		3.07		3.53		—		(56)
Three-way costless collars	11	—		2.25		2.80		3.54		—		(22)
Total	279											$	(450)





Basis Swaps
2022	82	$	—	$	—	$	—	$	—	$	(0.48)	$	61
2023	281	—		—		—		—		(0.50)		3
2024	46	—		—		—		—		(0.71)		13
2025	9	—		—		—		—		(0.64)		3

Total	418											$	80


	Volume (MBbls)	Weighted Average Strike Price per Bbl								Fair Value at September 30, 2022 (in millions)
		Swaps		Sold Puts		Purchased Puts		Sold Calls
Oil
2022
Fixed price swaps	846	$	52.68	$	—	$	—	$	—	$	(21)

Three-way costless collars	344	—		39.76		50.08		56.97		(7)
Total	1,190									$	(28)
2023
Fixed price swaps	1,081	$	60.05	$	—	$	—	$	—	$	(12)
Three-way costless collars	1,268	—		33.97		45.51		56.12		(24)
Total	2,349									$	(36)
2024
Fixed price swaps	913	$	70.66	$	—	$	—	$	—	$	3


2025
Fixed price swaps	41	$	77.66	$	—	$	—	$	—	$	—

Ethane
2022
Fixed price swaps	1,463	$	11.44	$	—	$	—	$	—	$	(7)


2023
Fixed price swaps	1,308	$	11.91	$	—	$	—	$	—	$	(4)







Propane
2022
Fixed price swaps	1,536	$	31.22	$	—	$	—	$	—	$	(8)
Three-way costless collars	77	—		16.80		21.00		31.92		—
Total	1,613									$	(8)
2023
Fixed price swaps	1,925	$	36.79	$	—	$	—	$	—	$	4


2024
Fixed price swaps	73	$	42.32	$	—	$	—	$	—	$	1

Normal Butane
2022
Fixed price swaps	464	$	36.22	$	—	$	—	$	—	$	(3)
2023
Fixed price swaps	347	$	41.24	$	—	$	—	$	—	$	1

Natural Gasoline
2022
Fixed price swaps	501	$	55.78	$	—	$	—	$	—	$	(6)
2023
Fixed price swaps	359	$	66.00	$	—	$	—	$	—	$	1


Other Derivative Contracts
	Volume (Bcf)	Weighted Average Strike Price per MMBtu		Fair Value at September 30, 2022 (in millions)





Call Options – Natural Gas (Net)
2022	21	$	3.01	$	(82)
2023	46	2.94		(118)
2024	9	3.00		(23)


Total	76			$	(223)

At September 30, 2022, the net fair value of the Company’s financial instruments was a $4,026 million liability, which included net reduction of the liability of $10 million related to non-performance risk. See Note 10 for additional details regarding the Company’s fair value measurements of its derivatives position.

As of September 30, 2022, the Company had no positions designated for hedge accounting treatment. Gains and losses on derivatives that are not designated for hedge accounting treatment, or do not meet hedge accounting requirements, are recorded as a component of gain (loss) on derivatives on the consolidated statements of operations. Accordingly, the gain (loss) on derivatives component of the statement of operations reflects the gains and losses on both settled and unsettled derivatives. Only the settled gains and losses are included in the Company’s realized commodity price calculations.

The balance sheet classification of the assets and liabilities related to derivative financial instruments are summarized below as of September 30, 2022 and December 31, 2021:


Derivative Assets
		Fair Value
(in millions)	Balance Sheet Classification	September 30, 2022		December 31, 2021
Derivatives not designated as hedging instruments:



Fixed price swaps – natural gas	Derivative assets	$	—	$	79
Fixed price swaps – oil	Derivative assets	1		—
Fixed price swaps – ethane	Derivative assets	—		2
Fixed price swaps – propane	Derivative assets	6		2
Fixed price swaps – normal butane	Derivative assets	2		1
Fixed price swaps – natural gasoline	Derivative assets	2		—
Two-way costless collars – natural gas	Derivative assets	27		9


Three-way costless collars – natural gas	Derivative assets	12		12
Three-way costless collars – oil	Derivative assets	2		1
Basis swaps – natural gas	Derivative assets	125		77



Fixed price swaps – natural gas	Other long-term assets	—		64
Fixed price swaps – oil	Other long-term assets	5		—

Fixed price swaps – propane	Other long-term assets	2		—
Two-way costless collars – natural gas	Other long-term assets	22		100


Three-way costless collars – natural gas	Other long-term assets	7		37
Three-way costless collars – oil	Other long-term assets	1		3
Basis swaps – natural gas	Other long-term assets	41		22

Interest rate swaps	Other long-term assets	—		2
Total derivative assets		$	255	$	411


Derivative Liabilities
		Fair Value
(in millions)	Balance Sheet Classification	September 30, 2022		December 31, 2021
Derivatives not designated as hedging instruments:


Fixed price swaps – natural gas storage	Derivative liabilities	$	—	$	1
Fixed price swaps – natural gas	Derivative liabilities	1,693		565
Fixed price swaps – oil	Derivative liabilities	32		60
Fixed price swaps – ethane	Derivative liabilities	10		10
Fixed price swaps – propane	Derivative liabilities	11		78
Fixed price swaps – normal butane	Derivative liabilities	4		27
Fixed price swaps – natural gasoline	Derivative liabilities	7		33
Two-way costless collars – natural gas	Derivative liabilities	423		104

Two-way costless collars – ethane	Derivative liabilities	—		1
Three-way costless collars – natural gas	Derivative liabilities	826		298
Three-way costless collars – oil	Derivative liabilities	28		24
Three-way costless collars – propane	Derivative liabilities	—		4
Basis swaps – natural gas	Derivative liabilities	77		9
Call options – natural gas	Derivative liabilities	164		67





Fixed price swaps – natural gas	Long-term derivative liabilities	629		246
Fixed price swaps – oil	Long-term derivative liabilities	4		9
Fixed price swaps – ethane	Long-term derivative liabilities	1		—
Fixed price swaps – propane	Long-term derivative liabilities	—		1

Fixed price swaps – natural gasoline	Long-term derivative liabilities	—		1
Two-way costless collars – natural gas	Long-term derivative liabilities	168		115

Three-way costless collars – natural gas	Long-term derivative liabilities	140		178
Three-way costless collars – oil	Long-term derivative liabilities	6		21

Basis swap – natural gas	Long-term derivative liabilities	9		22
Call options – natural gas	Long-term derivative liabilities	59		42

Total derivative liabilities		$	4,291	$	1,916


Net Derivative Position
	September 30, 2022		December 31, 2021
(in millions)
Net current derivative liabilities	$	(3,098)	$	(1,098)
Net long-term derivative liabilities	(938)		(407)
Non-performance risk adjustment	10		3
Net total derivative liabilities	$	(4,026)	$	(1,502)

The following tables summarize the before-tax effect of the Company’s derivative instruments on the consolidated statements of operations for the three and nine months ended September 30, 2022 and 2021:


Unsettled Gain (Loss) on Derivatives Recognized in Earnings

	Consolidated Statement of Operations Classification of Gain (Loss) on Derivatives, Unsettled	For the three months ended September 30,				For the nine months ended September 30,
Derivative Instrument		2022		2021		2022		2021

		(in millions)
Purchased fixed price swaps – natural gas	Gain (Loss) on Derivatives	$	—	$	(1)	$	—	$	1
Fixed price swaps – natural gas	Gain (Loss) on Derivatives	(140)		(748)		(1,654)		(991)
Fixed price swaps – oil	Gain (Loss) on Derivatives	73		—		39		(81)
Fixed price swaps – ethane	Gain (Loss) on Derivatives	24		(12)		(3)		(25)
Fixed price swaps – propane	Gain (Loss) on Derivatives	67		(32)		74		(120)
Fixed price swaps – normal butane	Gain (Loss) on Derivatives	24		(7)		24		(41)
Fixed price swaps – natural gasoline	Gain (Loss) on Derivatives	28		1		29		(30)
Two-way costless collars – natural gas	Gain (Loss) on Derivatives	(99)		(358)		(432)		(518)
Two-way costless collars – oil	Gain (Loss) on Derivatives	—		1		—		—
Two-way costless collars – ethane	Gain (Loss) on Derivatives	—		(1)		1		(2)
Two-way costless collars – propane	Gain (Loss) on Derivatives	—		—		—		—
Three-way costless collars – natural gas	Gain (Loss) on Derivatives	(26)		(619)		(520)		(869)
Three-way costless collars – oil	Gain (Loss) on Derivatives	38		—		10		(47)
Three-way costless collars – propane	Gain (Loss) on Derivatives	3		(3)		4		(5)
Basis swaps – natural gas	Gain (Loss) on Derivatives	4		(70)		12		(23)
Call options – natural gas	Gain (Loss) on Derivatives	(8)		(143)		(114)		(180)
Call options – oil	Gain (Loss) on Derivatives	—		—		—		(1)
Put options – natural gas	Gain (Loss) on Derivatives	—		—		—		1
Swaptions – natural gas	Gain (Loss) on Derivatives	—		(21)		—		(24)
Purchased fixed price swap – natural gas storage	Gain (Loss) on Derivatives	—		1		—		2
Fixed price swap – natural gas storage	Gain (Loss) on Derivatives	—		(3)		1		(5)
Interest rate swaps	Gain (Loss) on Derivatives	—		—		(2)		1
Total loss on unsettled derivatives		$	(12)	$	(2,015)	$	(2,531)	$	(2,957)



Settled Gain (Loss) on Derivatives Recognized in Earnings (1)

	Consolidated Statement of Operations Classification of Gain (Loss) on Derivatives, Settled	For the three months ended September 30,					For the nine months ended September 30,
Derivative Instrument		2022			2021		2022			2021

		(in millions)
Purchased fixed price swaps - natural gas	Gain (Loss) on Derivatives	$	—		$	4	$	—		$	5
Fixed price swaps – natural gas	Gain (Loss) on Derivatives	(1,082)			(111)		(2,249)			(112)
Fixed price swaps – oil	Gain (Loss) on Derivatives	(30)			(18)		(104)			(63)
Fixed price swaps – ethane	Gain (Loss) on Derivatives	(15)			(13)		(42)			(23)
Fixed price swaps – propane	Gain (Loss) on Derivatives	(21)			(53)		(96)			(113)
Fixed price swaps – normal butane	Gain (Loss) on Derivatives	(7)			(17)		(33)			(33)
Fixed price swaps – natural gasoline	Gain (Loss) on Derivatives	(9)			(16)		(45)			(38)
Two-way costless collars – natural gas	Gain (Loss) on Derivatives	(152)			(79)		(386)			(79)
Two-way costless collars – oil	Gain (Loss) on Derivatives	—			(1)		—			(3)
Two-way costless collars – ethane	Gain (Loss) on Derivatives	—			(1)		(1)			(1)

Three-way costless collars – natural gas	Gain (Loss) on Derivatives	(491)			(84)		(1,008)			(91)
Three-way costless collars – oil	Gain (Loss) on Derivatives	(12)			(10)		(43)			(16)
Three-way costless collars – propane	Gain (Loss) on Derivatives	(1)			—		(4)			—
Basis swaps – natural gas	Gain (Loss) on Derivatives	40			27		64			76
Index swaps – natural gas	Gain (Loss) on Derivatives	—			—		(1)			—
Call options – natural gas	Gain (Loss) on Derivatives	(109)			(16)		(235)			(16)
Call options – oil	Gain (Loss) on Derivatives	—			(1)		—			(1)
Put options – natural gas	Gain (Loss) on Derivatives	—			—		—			(2)		(2)
Purchased fixed price swaps – natural gas storage	Gain (Loss) on Derivatives	—			1		1			1
Fixed price swaps – natural gas storage	Gain (Loss) on Derivatives	—			—		(3)			—

Total loss on settled derivatives		$	(1,889)		$	(388)	$	(4,185)		$	(509)

Total loss on derivatives		$	(1,903)	(1)	$	(2,399)	$	(6,709)	(1)	$	(3,461)

(1)The Company calculates gain (loss) on derivatives, settled, as the summation of gains and losses on positions that settled within the period.

(2)Includes $2 million in amortization of premiums paid related to certain natural gas put options for the nine months ended September 30, 2021, which is included in gain (loss) on derivatives on the consolidated statements of operations.


Total Gain (Loss) on Derivatives Recognized in Earnings
	For the three months ended September 30,				For the nine months ended September 30,
	2022		2021		2022		2021

	(in millions)
Total loss on unsettled derivatives	$	(12)	$	(2,015)	$	(2,531)	$	(2,957)
Total loss on settled derivatives	(1,889)		(388)		(4,185)		(509)
Non-performance risk adjustment	(2)		4		7		5
Total loss on derivatives	$	(1,903)	$	(2,399)	$	(6,709)	$	(3,461)