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 GAAP.

We typically utilize collars and swaps, which are placed with financial institutions that we believe to be 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 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 (“WTI”), Louisiana Light Sweet (“LLS”) and Magellan East Houston (“MEH”) crude oil 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 are currently unhedged with respect to NGL and natural gas production.

The following table sets forth our commodity derivative positions, presented on a net basis by period of maturity, as of March 31, 2019:



		Average	Weighted
		Volume Per	Average		Fair Value
	Instrument	Day	Price		Asset		Liability
Crude Oil:		(barrels)	($/barrel)
Second quarter 2019	Swaps-WTI	6,421	$	54.48	$	—	$	3,361
Second quarter 2019	Swaps-LLS	5,000	$	59.17	—		3,109
Second quarter 2019	Swaps-MEH	1,000	$	64.00	—		183
Third quarter 2019	Swaps-WTI	6,397	$	54.50	—		3,430
Third quarter 2019	Swaps-LLS	5,000	$	59.17	—		2,592
Third quarter 2019	Swaps-MEH	1,000	$	64.00	—		34
Fourth quarter 2019	Swaps-WTI	6,398	$	54.50	—		3,130
Fourth quarter 2019	Swaps-LLS	5,000	$	59.17	—		1,995
Fourth quarter 2019	Swaps-MEH	1,000	$	64.00	68		—
First quarter 2020	Swaps-WTI	6,000	$	54.09	—		2,904
First quarter 2020	Swaps-MEH	2,000	$	61.03	—		58
Second quarter 2020	Swaps-WTI	6,000	$	54.09	—		2,369
Second quarter 2020	Swaps-MEH	2,000	$	61.03	—		57
Third quarter 2020	Swaps-WTI	6,000	$	54.09	—		1,898
Third quarter 2020	Swaps-MEH	2,000	$	61.03	—		40
Fourth quarter 2020	Swaps-WTI	6,000	$	54.09	—		1,518
Fourth quarter 2020	Swaps-MEH	2,000	$	61.03	—		39
Settlements to be paid in subsequent period							1,721

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:



	Three Months Ended March 31,
	2019			2018
Derivative losses	$	(68,017	)	$	(18,795	)

The effects of derivative gains and (losses) and cash settlements 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 presented on a gross basis, as well as the locations of these instruments on our Condensed Consolidated Balance Sheets as of the dates presented:



		March 31, 2019				December 31, 2018
		Derivative		Derivative		Derivative		Derivative
Type	Balance Sheet Location	Assets		Liabilities		Assets		Liabilities
Commodity contracts	Derivative assets/liabilities – current	$	2,658	$	25,107	$	34,932	$	991
Commodity contracts	Derivative assets/liabilities – noncurrent	229		6,150		10,100		—
		$	2,887	$	31,257	$	45,032	$	991

As of March 31, 2019, we reported net commodity derivative liabilities of $28.4 million. The contracts associated with this position are with seven counterparties, all 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.