XML 24 R11.htm IDEA: XBRL DOCUMENT v3.21.2
Derivative Financial Instruments
 9 Months Ended
Sep. 30, 2021
Derivative Instruments Not Designated as Hedging Instruments [Abstract]  
Derivative Instruments and Hedging Activities Disclosure [Text Block]
NOTE 5 - COMMODITY DERIVATIVE FINANCIAL INSTRUMENTS

Objective and Strategy. Our results of operations and operating cash flows are affected by changes in market prices for crude oil, natural gas and NGLs. To manage a portion of our exposure to price volatility from producing crude oil and natural gas we enter into commodity derivative contracts such as collars, fixed-price exchanges and basis protection exchanges, to protect against price declines in future periods. We do not enter into derivative contracts for speculative or trading purposes.

We believe our commodity derivative instruments continue to be effective in achieving the risk management objectives for which they were intended. Depending on changes in oil and gas futures markets and management’s view of underlying supply and demand trends, we may increase or decrease our derivative positions from current levels. As of September 30, 2021, we had derivative instruments in place for a portion of our anticipated production in 2021 through 2024. Our commodity derivative contracts have been entered into at no upfront cost to us as we hedge our anticipated production at the then-prevailing commodity market prices, without adjustment for premium or discount.
Effect of Derivative Instruments on the Condensed Consolidated Statements of Operations. The following table presents the impact of our derivative instruments on our condensed consolidated statements of operations:
Three Months Ended September 30,
Nine Months Ended September 30,
Condensed Consolidated Statement of Operations Line Item2021202020212020
(in thousands)
Commodity price risk management gain (loss), net
Net settlements$(129,571)$66,895 $(215,357)$227,513 
Net change in fair value of unsettled derivatives(88,107)(134,956)(491,830)18,338 
Total commodity price risk management gain (loss), net$(217,678)$(68,061)$(707,187)$245,851 

Commodity Derivative Contracts. As of September 30, 2021, we had the following outstanding derivative contracts. When aggregating multiple contracts, the weighted-average contract price is presented:
 CollarsFixed-Price Swaps 
Commodity/ Index/
Maturity Period
Quantity
(Crude oil -
MBbls
Natural Gas - BBtu)
Weighted-Average
Contract Price
Quantity
(Crude Oil - MBbls
Gas and Basis-
BBtu)
Weighted-
Average
Contract
Price
Fair Value
September 30, 2021
(in thousands)
FloorsCeilings
Crude Oil
NYMEX
20211,251 $38.01 $49.29 2,488 $41.89 $(112,693)
20224,272 51.26 63.33 6,744 44.42 (214,207)
20231,200 55.00 65.58 5,202 56.55 (41,739)
2024— — — 600 59.05 (892)
Total Crude Oil6,723 15,034 $(369,531)
Natural Gas
NYMEX
202118,300 2.51 2.92 7,950 2.40 (82,363)
202217,400 2.50 2.89 33,600 2.70 (84,484)
2023— — — 30,398 2.68 (22,515)
Total Natural Gas35,700 71,948 (189,362)
Basis Protection - Natural Gas
CIG
202126,250 (0.44)(3,443)
202251,000 (0.26)(4,775)
202326,438 (0.26)(797)
Total Basis Protection - Natural Gas103,688 (9,015)
Commodity Derivatives Fair Value$(567,908)
Subsequent to September 30, 2021, we entered into the following commodity derivative positions covering our crude oil and natural gas production:

 CollarsFixed-Price Swaps
Commodity/ Index/
Maturity Period
Quantity
(Crude oil -
MBbls
Natural Gas - BBtu)
Weighted-Average
Contract Price
Quantity
(Crude oil -
MBbls
Natural Gas - BBtu)
Weighted-
Average
Contract
Price
FloorsCeilings
Crude Oil
NYMEX
20221,200 $60.00 $81.60 — $— 
20231,575 55.00 73.32 30061.52
2024225 55.0075.1130061.52
Natural Gas
NYMEX
202218,060 $3.75 $6.60 — $— 
20234,020 3.00 4.42 — — 
Basis Protection
CIG
2022— $— $— 18,060 $(0.22)
2023— — — 4,020 (0.29)

Effect of Derivative Instruments on the Condensed Consolidated Balance Sheet. The balance sheet line items and fair value amounts of our derivative instruments are disclosed in Note 4 - Fair Value Measurements.

Our financial derivative agreements contain master netting provisions that provide for the net settlement of contracts through a single payment in the event of early termination. We have elected not to offset the fair value positions recorded on our condensed consolidated balance sheets.

The following table reflects the impact of netting agreements on gross derivative assets and liabilities as of the dates indicated:
As of September 30, 2021Total Gross Amount Presented on the Balance SheetEffect of Master Netting AgreementsTotal Net Amount
(in thousands)
Derivative assets:
Derivative instruments, at fair value$20,301 $(20,301)$— 
Derivative liabilities:
Derivative instruments, at fair value$588,209 $(20,301)$567,908 

Derivative Counterparties. Our commodity derivative instruments expose us to the risk of non-performance by our counterparties. We use financial institutions who are also lenders under our revolving credit facility as counterparties to our commodity derivative contracts. To date, we have had no derivative counterparty default losses. We have evaluated the credit risk of our derivative assets from our counterparties using relevant credit market default rates, giving consideration to amounts outstanding for each counterparty and the duration of each outstanding derivative position. Based on our evaluation, we have determined that the potential impact of nonperformance of our current counterparties on the fair value of our derivative instruments is not significant at September 30, 2021; however, this determination may change.