Derivatives

9 Months Ended

Sep. 30, 2019

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivatives

DERIVATIVES

Commodity Derivatives

We have signed various types of derivative transactions covering some of our projected natural gas and oil production. These transactions are intended to reduce our exposure to market price volatility by setting the price(s) we will receive for that production. Our decisions on the price(s), type, and quantity of our production subject to a derivative contract are based, in part, on our view of current and future market conditions. As of September 30, 2019, these hedges made up our derivative transactions:

•Swaps. We receive or pay a fixed price for the commodity and pay or receive a floating market price to the counterparty. The fixed-price payment and the floating-price payment are netted, resulting in a net amount due to or from the counterparty.

•Basis/Differential Swaps. We receive or pay the NYMEX settlement value plus or minus a fixed delivery point price for the commodity and pay or receive the published index price at the specified delivery point. We use basis/differential swaps to hedge the price risk between NYMEX and its physical delivery points.

•Collars. A collar contains a fixed floor price (put) and a ceiling price (call). If the market price exceeds the call strike price or falls below the put strike price, we receive the fixed price and pay the market price. If the market price is between the call and the put strike price, no payments are due from either party.

•Three-way collars. A three-way collar contains a fixed floor price (long put), fixed subfloor price (short put), and a fixed ceiling price (short call). If the market price exceeds the ceiling strike price, we receive the ceiling strike price and pay the market price. If the market price is between the ceiling and the floor strike price, no payments are due from either party. If the market price is below the floor price but above the subfloor price, we receive the floor strike price and pay the market price. If the market price is below the subfloor price, we receive the market price plus the difference between the floor and subfloor strike prices and pay the market price.

We have documented policies and procedures to monitor and control the use of derivative transactions. We do not engage in derivative transactions not otherwise tied to our projected production. Any changes in the fair value of our derivative transactions before maturity (i.e., temporary fluctuations in value) are reported in gain (loss) on derivatives in our Unaudited Condensed Consolidated Statements of Operations.

At September 30, 2019, these derivatives were outstanding:

Term	Commodity	Contracted Volume	Weighted Average  Fixed Price	Contracted Market
Oct'19	Natural gas - swap	60,000 MMBtu/day	$2.900	IF - NYMEX (HH)
Nov'19 - Dec'19	Natural gas - swap	40,000 MMBtu/day	$2.900	IF - NYMEX (HH)
Oct'19 - Dec'19	Natural gas - basis swap	20,000 MMBtu/day	$(0.659)	PEPL
Oct'19 - Dec'19	Natural gas - basis swap	10,000 MMBtu/day	$(0.625)	NGPL MIDCON
Oct'19 - Dec'19	Natural gas - basis swap	30,000 MMBtu/day	$(0.265)	NGPL TEXOK
Jan'20 - Dec'20	Natural gas - basis swap	30,000 MMBtu/day	$(0.275)	NGPL TEXOK
Jan'20 - Dec'20	Natural gas - basis swap	20,000 MMBtu/day	$(0.455)	PEPL
Oct'19 - Dec'19	Natural gas - collar	20,000 MMBtu/day	$2.63-$3.03	IF - NYMEX (HH)
Oct'19 - Dec'19	Crude oil - swap	2,000 Bbl/day	$59.80	WTI - NYMEX
Oct'19 - Dec'19	Crude oil - three-way collar	4,000 Bbl/day	$61.25 - $51.25 - $72.93	WTI - NYMEX

After September 30, 2019, the following derivatives were entered into:

Term	Commodity	Contracted Volume	Weighted Average Fixed Price	Contracted Market
Jan'20 - Dec'20	Natural gas - three-way collar	30,000 MMBtu/day	$2.50 - $2.20 - $2.80	IF - NYMEX (HH)
Jan'21 - Dec'21	Natural gas - basis swap	30,000 MMBtu/day	$(0.215)	NGPL TEXOK

The following tables present the fair values and locations of the derivative transactions recorded in our Unaudited Condensed Consolidated Balance Sheets:

		Derivative Assets
		Fair Value
	Balance Sheet Location	September 30, 2019		December 31, 2018
		(In thousands)
Commodity derivatives:
Current	Current derivative asset	$	5,959	$	12,870
Long-term	Non-current derivative asset	128		—
Total derivative assets		$	6,087	$	12,870

		Derivative Liabilities
		Fair Value
	Balance Sheet Location	September 30, 2019		December 31, 2018
		(In thousands)
Commodity derivatives:
Current	Current derivative liability	$	—	$	—
Long-term	Non-current derivative liability	107		293
Total derivative liabilities		$	107	$	293

All our counterparties are subject to master netting arrangements. If we have a legal right of set-off, we net the value of the derivative transactions we have with the same counterparty in our Unaudited Condensed Consolidated Balance Sheets.

Following is the effect of derivative instruments on the Unaudited Condensed Consolidated Statements of Operations at September 30:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2019		2018		2019		2018
	(In thousands)
Gain (loss) on derivatives:
Gain (loss) on derivatives, included are amounts settled during the period of $6,515, ($9,112), $11,829, and ($18,040), respectively	$	4,237	$	(4,385)	$	5,232	$	(25,608)
	$	4,237	$	(4,385)	$	5,232	$	(25,608)