Derivative Instruments

We utilize derivative instruments to mitigate our financial exposure to commodity price volatility. Our derivative instruments are not formally designated as hedges in the context of U.S. GAAP.

Commodity Derivatives

We typically utilize collars, swaps and swaptions, 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 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 collar contract.

We determine the fair values of our commodity derivative instruments based on discounted cash flows derived from third-party quoted forward prices for WTI crude oil, Light Louisiana Sweet (“LLS”) crude oil and NYMEX Henry Hub gas 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 our amounts outstanding under 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 in our Consolidated Statement of Cash Flows for the period January 1, 2016 through September 12, 2016.

On May 13, 2016, the Bankruptcy Court approved our motion to enter into new commodity derivative contracts. Accordingly, we hedged a substantial portion of our future crude oil production through the end of 2019, as required in the RSA, at a weighted-average price of approximately $49.12 per barrel. We also entered into additional hedge contracts in 2017 as reflected in the table that follows. We are currently unhedged with respect to natural gas as well as NGL production.

The following table sets forth our commodity derivative positions as of December 31, 2017:



		Average	Weighted
		Volume Per	Average		Fair Value
	Instrument ¹	Day	Price		Asset		Liability
Crude Oil:		(barrels)	($/barrel)
First quarter 2018	Swaps	8,013	$	51.14	$	—	$	7,622
Second quarter 2018	Swaps	7,984	$	51.15	—		7,075
Third quarter 2018	Swaps	7,955	$	51.15	—		6,241
Fourth quarter 2018	Swaps	7,955	$	51.15	—		5,357
First quarter 2019	Swaps	6,446	$	50.97	—		3,845
Second quarter 2019	Swaps	6,421	$	50.97	—		3,336
Third quarter 2019	Swaps	6,397	$	50.97	—		2,886
Fourth quarter 2019	Swaps	6,398	$	50.97	—		2,528
First quarter 2020	Swaps	2,000	$	51.29	—		441
Second quarter 2020	Swaps	2,000	$	51.29	—		353
Third quarter 2020	Swaps	2,000	$	51.29	—		283
Fourth quarter 2020	Swaps	2,000	$	51.29	—		228
Settlements to be paid in subsequent period							1,482

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Including the effect of additional hedge contracts entered into in January 2018, we have hedged our crude oil production as follows: 2018 - 6,227 BOPD at a weighted-average WTI-based price of $50.70 per barrel and 2,500 BOPD at a weighted-average LLS-based price of $55.18 per barrel, 2019 - 4,915 BOPD at a weighted-average WTI-based price of $52.12 per barrel and 2,500 BOPD at a weighted-average LLS-based price of $51.30 per barrel and 2020 - 4,000 BOPD at a weighted-average WTI-based price of $52.67 per barrel.

Financial Statement Impact of Derivatives

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



	Successor						Predecessor
	Year Ended			September 13 Through			January 1 Through			Year Ended
	December 31,			December 31,			September 12,			December 31,
	2017			2016			2016			2015
Derivative gains (losses)	$	(17,819	)	$	(16,622	)	$	(8,333	)	$	71,247

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 Consolidated Statements of Cash Flows under the “Net losses (gains)” and “Cash settlements, net.”

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



		Fair Values
		December 31, 2017				December 31, 2016
		Derivative		Derivative		Derivative		Derivative
Type	Balance Sheet Location	Assets		Liabilities		Assets		Liabilities
Commodity contracts	Derivative assets/liabilities – current	$	—	$	27,777	$	—	$	12,932
Commodity contracts	Derivative assets/liabilities – noncurrent	—		13,900		—		14,437
		$	—	$	41,677	$	—	$	27,369

As of December 31, 2017, we reported a commodity derivative liability of $41.7 million. The net and gross amounts for our derivative assets and liabilities are the same for both periods presented above. The contracts associated with this position are with five counterparties, all of which are investment grade financial institutions. This concentration may impact our overall credit risk, either positively or negatively, 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.