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Derivative Financial Instruments
 6 Months Ended
Jun. 30, 2021
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 regularly enters into 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 June 30, 2021, 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 NGL production, and swap arrangements for gas 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 NYMEX WTI and WTI Midland for a portion of its Midland Basin production with sales contracts that settle at WTI Midland prices, 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, and between NYMEX WTI and Argus WTI Houston Magellan East Houston Terminal (“MEH”) for a portion of its South Texas oil production with sales contracts that settle at Argus WTI Houston MEH 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 June 30, 2021, the Company had commodity derivative contracts outstanding through the fourth quarter of 2023 as summarized in the tables below.
Contract Period
Q3 2021Q4 202120222023
Oil Derivatives (volumes in MBbl and prices in $ per Bbl):
Swaps
NYMEX WTI Volumes5,363 4,744 7,823 1,190 
Weighted-Average Contract Price$41.16 $39.85 $44.69 $45.20 
Collars
NYMEX WTI Volumes— — 1,721 — 
Weighted-Average Floor Price$— $— $51.84 $— 
Weighted-Average Ceiling Price$— $— $58.37 $— 
Basis Swaps
WTI Midland-NYMEX WTI Volumes3,756 3,824 9,500 — 
Weighted-Average Contract Price (1)
$0.75 $0.71 $1.15 $— 
NYMEX WTI-ICE Brent Volumes920 920 3,650 — 
Weighted-Average Contract Price (2)
$(7.86)$(7.86)$(7.78)$— 
WTI Houston MEH-NYMEX WTI Volumes356 466 1,329 — 
Weighted-Average Contract Price (3)
$0.60 $0.60 $1.25 $— 
Roll Differential Swaps
NYMEX WTI Volumes4,326 3,831 11,278 1,832 
Weighted-Average Contract Price$(0.18)$(0.16)$0.11 $0.39 
Gas Derivatives (volumes in BBtu and prices in $ per MMBtu):
Swaps (4)
IF HSC Volumes12,575 12,412 28,932 — 
Weighted-Average Contract Price$2.40 $2.41 $2.52 $— 
WAHA Volumes8,086 7,627 14,087 — 
Weighted-Average Contract Price$1.88 $1.82 $2.32 $— 
IF Tenn TX Z0— — 513 — 
Weighted-Average Contract Price$— $— $3.22 $— 
NGL Derivatives (volumes in MBbl and prices in $ per Bbl):
Swaps
OPIS Propane Mont Belvieu Non-TET Volumes854 824 461 — 
Weighted-Average Contract Price$22.16 $22.15 $27.19 $— 
OPIS Normal Butane Mont Belvieu Non-TET Volumes37 36 — — 
Weighted-Average Contract Price$30.87 $30.87 $— $— 
Collars
OPIS Propane Mont Belvieu Non-TET Volumes— — 627 — 
Weighted-Average Floor Price$— $— $23.83 $— 
Weighted-Average Ceiling Price$— $— $29.19 $— 
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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).
(3)    Represents the price differential between Argus WTI Houston MEH (Houston, Texas) and NYMEX WTI (Cushing, Oklahoma).
(4)    The Company has natural gas swaps in place that settle against Inside FERC Houston Ship Channel (“IF HSC”), Inside FERC West Texas, and Platt’s Gas Daily West Texas (“IF WAHA” and “GD WAHA”, respectively, and together “WAHA”), and Inside FERC Tennessee Texas, Zone 0 (“IF Tenn TX Z0”). As of June 30, 2021, WAHA volumes were comprised of 70 percent IF WAHA and 30 percent GD WAHA.
Commodity Derivative Contracts Entered Into Subsequent to June 30, 2021
Subsequent to June 30, 2021, the Company entered into the following commodity derivative contracts:
•fixed price NYMEX WTI oil swap contracts through the fourth quarter of 2021 for a total of 0.4 MMBbl of oil production at a weighted-average contract price of $70.09 per Bbl; and
•a fixed price OPIS Propane Mont Belvieu Non-TET swap contract for the second quarter of 2022 for a total of 0.1 MMBbl of propane production at a contract price of $35.70 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 liability of $616.5 million and $168.2 million as of June 30, 2021, and December 31, 2020, respectively.
The following table details the fair value of commodity derivative contracts recorded in the accompanying balance sheets, by category:
As of June 30, 2021As of December 31, 2020
(in thousands)
Derivative assets:
Current assets$31,303 $31,203 
Noncurrent assets13,534 23,150 
Total derivative assets$44,837 $54,353 
Derivative liabilities:
Current liabilities$545,062 $200,189 
Noncurrent liabilities116,273 22,331 
Total derivative liabilities$661,335 $222,520 
Offsetting of Derivative Assets and Liabilities
As of June 30, 2021, and December 31, 2020, 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
June 30, 2021December 31, 2020June 30, 2021December 31, 2020
(in thousands)
Gross amounts presented in the accompanying balance sheets$44,837 $54,353 $(661,335)$(222,520)
Amounts not offset in the accompanying balance sheets(44,370)(53,598)44,370 53,598 
Net amounts$467 $755 $(616,965)$(168,922)
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 June 30,For the Six Months Ended June 30,
2021202020212020
(in thousands)
Derivative settlement (gain) loss:
Oil contracts$134,298 $(138,606)$190,627 $(192,188)
Gas contracts12,232 (1,054)52,680 (15,679)
NGL contracts12,292 (2,868)23,400 (8,098)
Total net derivative settlement (gain) loss$158,822 $(142,528)$266,707 $(215,965)
Net derivative (gain) loss:
Oil contracts$277,215 $151,250 $543,030 $(391,290)
Gas contracts61,364 8,261 110,286 14,989 
NGL contracts31,769 7,689 61,721 (1,839)
Total net derivative (gain) loss$370,348 $167,200 $715,037 $(378,140)
Credit Related Contingent Features
As of June 30, 2021, 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.