DERIVATIVE FINANCIAL INSTRUMENTS

12 Months Ended

Dec. 31, 2021

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Instruments and Hedging Activities Disclosure [Text Block]

NOTE 7 - 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 December 31, 2021, we had derivative instruments in place for a portion of our anticipated production in 2022 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.

As of December 31, 2021 and 2020, our derivative instruments were comprised of fixed-price swaps, collars and basis protection swaps.

•Fixed-price swaps are arrangements that guarantee a fixed price. If the index price is below the fixed contract price, we receive the market price from the purchaser and receive the difference between the index price and the fixed contract price from the counterparty. If the index price is above the fixed contract price, we receive the market price from the purchaser and pay the difference between the index price and the fixed contract price to the counterparty;

•Collars contain a fixed floor price (put) and ceiling price (call). If the index price falls below the fixed put strike price, we receive the market price from the purchaser and receive the difference between the put strike price and index price from the counterparty. If the index price exceeds the fixed call strike price, we receive the market price from the purchaser and pay the difference between the call strike price and index price to the counterparty. If the index price is between the put and call strike price, no payments are due to or from the counterparty;

•Basis protection swaps are arrangements that guarantee a price differential for natural gas from a specified delivery point. For basis protection swaps, we receive a payment from the counterparty if the price differential is greater than the stated terms of the contract and pay the counterparty if the price differential is less than the stated terms of the contract.

Effect of Derivative Instruments on the Consolidated Statements of Operations. The following table presents the impact of our derivative instruments on our consolidated statements of operations for the periods presented:

	Year Ended December 31,
Consolidated Statements of Operations Line Item	2021		2020		2019
	(in thousands)
Commodity price risk management gain (loss), net
Net settlements	$	(410,188)	$	279,271	$	(17,598)
Net change in fair value of unsettled derivatives	(291,268)		(99,001)		(145,246)
Total commodity price risk management gain (loss), net	$	(701,456)	$	180,270	$	(162,844)

Commodity Derivative Contracts. As of December 31, 2021, we had the following outstanding derivative contracts. When aggregating multiple contracts, the weighted average contract price is presented:

	Collars					Fixed-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 December 31, 2021 (in thousands)
		Floors		Ceilings
Crude Oil
NYMEX
2022	5,472	$	53.18	$	67.33	6,744	$	44.42	$	(235,146)
2023	2,775	55.00		70.00		5,502	56.83		(58,299)
2024	225	55.00		75.12		1,500	61.27		(2,276)
Total Crude Oil	8,472					13,746			(295,721)
Natural Gas
NYMEX
2022	35,460	3.14		4.78		33,600	2.70		(41,165)
2023	3,000	3.00		4.42		30,398	2.68		(19,171)
Total Natural Gas	38,460					63,998			(60,336)
Basis Protection - Natural Gas
CIG
2022	—	—		—		69,060	(0.25)		(10,650)
2023	—	—		—		29,438	(0.27)		(638)
Total Basis Protection - Natural Gas	—					98,498			(11,288)
Commodity Derivatives Fair Value									$	(367,345)

Subsequent to December 31, 2021, we entered into the following commodity derivative positions covering our crude oil and natural gas production:

	Collars					Fixed-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
		Floors		Ceilings
Crude Oil - NYMEX
2023	1,050	$	55.00	$	79.14	—	$	—
2024	—	—		—		2,208	70.25
Natural Gas - NYMEX
2023	12,060	3.08		4.35		—	—
Natural Gas Basis Protection - CIG
2023	—	—		—		12,060	(0.29)

Effect of Derivative Instruments on the Consolidated Balance Sheet. The balance sheet line items and fair value amounts of our derivative instruments are disclosed in Note 6 - 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 consolidated balance sheets.

The following table reflects the impact of netting agreements on gross derivative assets and liabilities:

	Total Gross Amount Presented on the Balance Sheet		Effect of Master Netting Agreements		Total Net Amount
As of December 31, 2021	(in thousands)
Derivative asset instruments, at fair value	$	33,086	$	(33,086)	$	—
Derivative liability instruments, at fair value	$	400,431	$	(33,086)	$	367,345
As of December 31, 2020
Derivative asset instruments, at fair value	$	58,434	$	(39,691)	$	18,743
Derivative liability instruments, at fair value	$	134,511	$	(39,691)	$	94,820

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 December 31, 2021; however, this determination may change.