Derivative Instruments

We utilize derivative instruments to mitigate our financial exposure to crude oil and natural gas price volatility. Our derivative instruments are not formally designated as hedges in the context of GAAP.

We typically utilize collars and swaps, which are placed with financial institutions that we believe are acceptable credit risks, to hedge against the variability in cash flows associated with anticipated sales of our future oil and gas production. While the use of derivative instruments limits the risk of adverse price movements, such use may also limit future revenues from favorable price movements.

The counterparty to a collar or swap contract is required to make a payment to us if the settlement price for any settlement period is below the floor or swap price for such contract. We are required to make a payment to the counterparty if the settlement price for any settlement period is above the ceiling or swap price for such contract. Neither party is required to make a payment to the other party if the settlement price for any settlement period is equal to or greater than the floor price and equal to or less than the ceiling price for such contract.

We determine the fair values of our commodity derivative instruments based on discounted cash flows derived from third-party quoted forward prices for West Texas Intermediate crude oil and NYMEX Henry Hub gas and closing prices as of the end of the reporting period. The discounted cash flows utilize discount rates adjusted for the credit risk of our counterparties if the derivative is in an asset position and our own credit risk if the derivative is in a liability position.

We terminated all of our pre-petition derivative contracts from March 2016 through May 2016 for $63.0 million and reduced amounts outstanding under the pre-petition credit agreement (the “RBL”) by $52.0 million. In connection with these transactions, the counterparties to the derivative contracts, which were also affiliates of lenders under the RBL, transferred the cash proceeds that were used for RBL repayments directly to the administrative agent under the RBL. Accordingly, all of these RBL repayments have been presented as non-cash financing activities on our Condensed Consolidated Statement of Cash Flows for the six months ended June 30, 2016.

In May 2016, we entered into a series of new commodity derivative contracts. Accordingly, we hedged a substantial portion of our future crude oil production through the end of 2019 at a weighted-average price of approximately $49.07 per barrel. We are currently unhedged with respect to NGL and natural gas production.

The following table sets forth our commodity derivative positions as of June 30, 2017:



		Average	Weighted
		Volume Per	Average		Fair Value
	Instrument	Day	Swap Price		Asset		Liability
Crude Oil:		(barrels)	($/barrel)
Third quarter 2017	Swaps	4,408	$	48.59	$	903,636	$	—
Fourth quarter 2017	Swaps	4,408	$	48.59	591,129		—
First quarter 2018	Swaps	3,476	$	49.10	419,761		—
Second quarter 2018	Swaps	3,476	$	49.10	299,826		—
Third quarter 2018	Swaps	3,476	$	49.10	193,534		—
Fourth quarter 2018	Swaps	3,476	$	49.10	82,328		—
First quarter 2019	Swaps	2,916	$	49.75	160,594		—
Second quarter 2019	Swaps	2,916	$	49.75	88,824		—
Third quarter 2019	Swaps	2,916	$	49.75	24,775		—
Fourth quarter 2019	Swaps	2,916	$	49.75	—		56,550
Settlements to be received in subsequent period					457,245

Financial Statement Impact of Derivatives

The impact of our derivative activities on income is included in “Derivatives” in our Condensed Consolidated Statements of Operations. The following table summarizes the effects of our derivative activities for the periods presented:



	Successor		Predecessor			Successor		Predecessor
	Three Months Ended		Three Months Ended			Six Months Ended		Six Months Ended
	June 30, 2017		June 30, 2016			June 30, 2017		June 30, 2016

Derivative gains (losses)	$	11,061	$	(21,759	)	$	28,077	$	(17,267	)

The effects of derivative gains and (losses) and cash settlements (except for those cash settlements attributable to the aforementioned termination transactions) are reported as adjustments to reconcile net income (loss) to net cash provided by operating activities. These items are recorded in the “Derivative contracts” section of our Condensed Consolidated Statements of Cash Flows under “Net (gains) losses” and “Cash settlements, net.”

The following table summarizes the fair values of our derivative instruments, as well as the locations of these instruments on our Condensed Consolidated Balance Sheets as of the dates presented:



		Fair Values as of
		June 30, 2017				December 31, 2016
		Derivative		Derivative		Derivative		Derivative
Type	Balance Sheet Location	Assets		Liabilities		Assets		Liabilities
Commodity contracts	Derivative assets/liabilities – current	$	2,672	$	—	$	—	$	12,932
Commodity contracts	Derivative assets/liabilities – noncurrent	584		90		—		14,437
		$	3,256	$	90	$	—	$	27,369

As of June 30, 2017, we reported commodity derivative asset of $3.2 million. The contracts associated with this position are with two counterparties, both of which are investment grade financial institutions. This concentration may impact our overall credit risk in that these counterparties may be similarly affected by changes in economic or other conditions. We have neither paid to, nor received from, our counterparties any cash collateral in connection with our derivative positions. Furthermore, our derivative contracts are not subject to margin calls or similar accelerations. No significant uncertainties exist related to the collectability of amounts that may be owed to us by these counterparties.