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Derivative Financial Instruments
 9 Months Ended
Sep. 30, 2020
Derivative Instruments Not Designated as Hedging Instruments [Abstract]  
Derivative Financial Instruments
Note 10 - Derivative Financial Instruments
Summary of Oil, Gas, and NGL Derivative Contracts in Place
The Company has entered into various commodity derivative contracts to mitigate a portion of its exposure to potentially adverse market changes in commodity prices and the associated impact on cash flows. As of September 30, 2020, all derivative counterparties were members of the Company’s Credit Agreement lender group and all contracts were entered into for other-than-trading purposes. The Company’s commodity derivative contracts consist of swap and collar arrangements for oil production, and swap arrangements for gas and NGL production. In a typical commodity swap agreement, if the agreed upon published third-party index price (“index price”) is lower than the swap fixed price, the Company receives the difference between the index price and the agreed upon swap fixed price. If the index price is higher than the swap fixed price, the Company pays the difference. For collar arrangements, the Company receives the difference between an agreed upon index price and the floor price if the index price is below the floor price. The Company pays the difference between the agreed upon ceiling price and the index price if the index price is above the ceiling price. No amounts are paid or received if the index price is between the floor and ceiling prices.
The Company has entered into fixed price oil basis swaps in order to mitigate exposure to adverse pricing differentials between certain industry benchmark prices and the actual physical pricing points where the Company’s production volumes are sold. Currently, the Company has basis swap contracts with fixed price differentials between New York Mercantile Exchange (“NYMEX”) WTI and WTI Midland for a portion of its Midland Basin production with sales contracts that settle at WTI Midland prices, and basis swap contracts with fixed price differentials between NYMEX WTI and Intercontinental Exchange Brent Crude (“ICE Brent”) for a portion of its Midland Basin oil production with sales contracts that settle at ICE Brent prices. The Company has also entered into crude oil swap contracts to fix the differential in pricing between the NYMEX calendar month average and the physical crude oil delivery month (“Roll Differential”) in which the Company pays the periodic variable Roll Differential and receives a weighted-average fixed price differential. The weighted-average fixed price differential represents the amount of net addition (reduction) to delivery month prices for the notional volumes covered by the swap contracts.
As of September 30, 2020, the Company had commodity derivative contracts outstanding through the fourth quarter of 2022 as summarized in the tables below.
Oil Swaps

Contract Period
NYMEX WTI Volumes
Weighted-Average
 Contract Price
(MBbl)(per Bbl)
Fourth quarter 20204,397 $57.03 
202117,115 $40.38 
20223,885 $43.58 
Total25,397 
Oil Collars
Contract Period
NYMEX WTI Volumes
Weighted-Average Floor Price
Weighted-Average Ceiling Price
(MBbl)(per Bbl)(per Bbl)
Fourth quarter 2020610 $55.00 $61.90 
2021551 $48.97 $51.96 
Total1,161 
Oil Basis Swaps
Contract Period
WTI Midland-NYMEX WTI Volumes
Weighted-Average
 Contract Price (1)
NYMEX WTI-ICE Brent Volumes
Weighted-Average Contract Price (2)
(MBbl)(per Bbl)(MBbl)(per Bbl)
Fourth quarter 20204,087 $(0.38)920 $(8.01)
202113,975 $0.75 3,650 $(7.86)
20229,500 $1.15 3,650 $(7.78)
Total27,562 8,220 
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(1)    Represents the price differential between WTI Midland (Midland, Texas) and NYMEX WTI (Cushing, Oklahoma).
(2)    Represents the price differential between NYMEX WTI (Cushing, Oklahoma) and ICE Brent (North Sea).
Oil Roll Differential Swaps

Contract Period
NYMEX WTI Volumes
Weighted-Average
Contract Price
(MBbl)(per Bbl)
Fourth quarter 20202,503 $(1.18)
20216,058 $(0.40)
Total8,561 
Gas Swaps
Contract Period
IF HSC Volumes
Weighted-Average
Contract Price
WAHA Volumes
Weighted-Average Contract Price
(BBtu)(per MMBtu)(BBtu)(per MMBtu)
Fourth quarter 20209,327 $2.39 4,872 $1.21 
202147,800 $2.42 25,155 $1.67 
20226,104 $2.23 5,904 $2.10 
Total (1)
63,231 35,931 
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(1)    The Company has natural gas swaps in place that settle against Inside FERC Houston Ship Channel (“IF HSC”), Inside FERC West Texas (“IF WAHA”), and Platt’s Gas Daily West Texas (“GD WAHA”). As of September 30, 2020, WAHA volumes were comprised of 64 percent IF WAHA and 36 percent GD WAHA.
NGL Swaps
OPIS Propane Mont Belvieu Non-TET
Contract PeriodVolumesWeighted-Average Contract Price
(MBbl)(per Bbl)
Fourth quarter 2020466 $22.29 
2021392 $19.74 
Total858 
Commodity Derivative Contracts Entered Into Subsequent to September 30, 2020
Subsequent to September 30, 2020, the Company entered into the following commodity derivative contracts:
•fixed price NYMEX WTI oil swap contracts for the second quarter of 2021 for a total of 0.3 MMBbl of oil production at a weighted-average contract price of $42.53 per Bbl;
•fixed price GD WAHA gas swap contracts for the second and third quarters of 2021 for a total of 924 BBtu of gas production at a weighted-average contract price of $2.47 per MMBtu and for 2022 for a total of 2,911 BBtu of gas production at a weighted-average contract price of $2.46 per MMBtu;
•fixed price IF HSC gas swap contracts for the second quarter of 2021 for a total of 1,290 BBtu of gas production at a weighted-average contract price of $2.62 per MMBtu and for 2022 for a total of 15,015 BBtu of gas production at a weighted-average contract price of $2.58 per MMBtu; and
•fixed price OPIS Propane Mont Belvieu Non-TET swap contracts for 2021 for a total of 0.9 MMBbl of propane production at a weighted-average contract price of $20.93 per Bbl.
Derivative Assets and Liabilities Fair Value
The Company’s commodity derivatives are measured at fair value and are included in the accompanying balance sheets as derivative assets and liabilities, with the exception of derivative instruments that meet the “normal purchase normal sale” exclusion. The Company does not designate its commodity derivative contracts as hedging instruments. The fair value of the commodity derivative contracts was a net asset of $49.5 million and $21.5 million as of September 30, 2020, and December 31, 2019, respectively.
The following table details the fair value of commodity derivative contracts recorded in the accompanying balance sheets, by category:
As of September 30, 2020As of December 31, 2019
(in thousands)
Derivative assets:
Current assets$128,046 $55,184 
Noncurrent assets31,509 20,624 
Total derivative assets$159,555 $75,808 
Derivative liabilities:
Current liabilities$76,969 $50,846 
Noncurrent liabilities33,068 3,444 
Total derivative liabilities$110,037 $54,290 
Offsetting of Derivative Assets and Liabilities
As of September 30, 2020, and December 31, 2019, all derivative instruments held by the Company were subject to master netting arrangements with various financial institutions. In general, the terms of the Company’s agreements provide for offsetting of amounts payable or receivable between it and the counterparty, at the election of both parties, for transactions that settle on the same date and in the same currency. The Company’s agreements also provide that in the event of an early termination, the counterparties have the right to offset amounts owed or owing under that and any other agreement with the same counterparty. The Company’s accounting policy is to not offset these positions in its accompanying balance sheets.
The following table provides a reconciliation between the gross assets and liabilities reflected on the accompanying balance sheets and the potential effects of master netting arrangements on the fair value of the Company’s commodity derivative contracts:
Derivative Assets as ofDerivative Liabilities as of
September 30, 2020December 31, 2019September 30, 2020December 31, 2019
(in thousands)
Gross amounts presented in the accompanying balance sheets$159,555 $75,808 $(110,037)$(54,290)
Amounts not offset in the accompanying balance sheets(104,037)(35,075)104,037 35,075 
Net amounts$55,518 $40,733 $(6,000)$(19,215)
The following table summarizes the commodity components of the derivative settlement (gain) loss, as well as the components of the net derivative (gain) loss line item presented in the accompanying statements of operations:
For the Three Months Ended
September 30,		For the Nine Months Ended
September 30,
2020201920202019
(in thousands)
Derivative settlement (gain) loss:
Oil contracts$(68,907)$2,246 $(261,095)$14,304 
Gas contracts(896)(12,210)(16,575)(13,744)
NGL contracts(502)(14,758)(8,600)(24,403)
Total net derivative settlement gain$(70,305)$(24,722)$(286,270)$(23,843)
Net derivative (gain) loss:
Oil contracts$30,641 $(83,984)$(360,649)$67,261 
Gas contracts31,548 (4,228)46,537 (36,337)
NGL contracts1,682 (12,677)(157)(34,387)
Total net derivative (gain) loss$63,871 $(100,889)$(314,269)$(3,463)
Credit Related Contingent Features
As of September 30, 2020, and through the filing of this report, all of the Company’s derivative counterparties were members of the Company’s Credit Agreement lender group. Under the Credit Agreement, the Company is required to provide mortgage liens on assets having a value equal to at least 85 percent of the total PV-9, as defined in the Credit Agreement, of the Company’s proved oil and gas properties evaluated in the most recent reserve report. Collateral securing indebtedness under the Credit Agreement also secures the Company’s derivative agreement obligations.