XML 40 R14.htm IDEA: XBRL DOCUMENT v3.22.4
DERIVATIVE FINANCIAL INSTRUMENTS
 12 Months Ended
Dec. 31, 2022
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Instruments and Hedging Activities Disclosure [Text Block]
NOTE 6 - 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 crude oil and natural 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, 2022, we had derivative instruments in place for a portion of our anticipated production in 2023 through 2025. 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, 2022 and 2021, 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 Item202220212020
(in thousands)
Commodity price risk management gain (loss), net
Net settlements$(879,889)$(410,188)$279,271 
Net change in fair value of unsettled derivatives416,278 (291,268)(99,001)
Total commodity price risk management gain (loss), net$(463,611)$(701,456)$180,270 
Commodity Derivative Contracts. As of December 31, 2022, 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 December 31, 2022 (in thousands)
FloorsCeilings
Crude Oil
NYMEX
20235,937 $61.27 $83.11 9,804 $66.42 $(156,820)
2024825 65.91 89.58 6,126 70.59 (17,042)
2025— — — 2,640 75.10 12,262 
Total Crude Oil6,762 18,570 (161,600)
Natural Gas
NYMEX
202326,864 3.48 6.03 41,825 3.05 (51,443)
2024— — — 26,160 3.54 (17,511)
2025— — — 6,225 4.87 2,640 
26,864 74,210 (66,314)
CIG
2023— — — 8,760 3.39 (7,657)
2025— — — 4,800 3.10 (4,370)
— 13,560 (12,027)
Total Natural Gas26,864 87,770 (78,341)
Basis Protection - Natural Gas
CIG
2023— — — 67,742 (0.26)(26,335)
2024— — — 26,160 (0.39)(3,329)
2025— — — 6,225 (0.37)(688)
Total Basis Protection - Natural Gas— 100,127 (30,352)
Commodity Derivatives Fair Value$(270,293)
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 5 - 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 SheetEffect of Master Netting AgreementsTotal Net Amount
As of December 31, 2022(in thousands)
Derivative asset instruments, at fair value$57,525 $(57,525)$— 
Derivative liability instruments, at fair value$327,818 $(57,525)$270,293 
As of December 31, 2021
Derivative asset instruments, at fair value$33,086 $(33,086)$— 
Derivative liability instruments, at fair value$400,431 $(33,086)$367,345 
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 non-performance of our current counterparties on the fair value of our derivative instruments is not significant at December 31, 2022; however, this determination may change.