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Derivative Financial Instruments
 9 Months Ended
Sep. 30, 2022
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 oil, gas, and NGL price volatility and location differentials, and the associated impact on cash flows. As of September 30, 2022, all contracts were entered into for other-than-trading purposes. The Company’s commodity derivative contracts consist of price swap and collar arrangements for oil, 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 price, the Company receives the difference between the index price and the agreed upon swap price. If the index price is higher than the swap 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 and gas 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 is sold. As of September 30, 2022, the Company has basis swap contracts with fixed price differentials between:
•NYMEX WTI and WTI Midland for a portion of its Midland Basin oil 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;
•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 (“WTI Houston MEH”) prices;
•NYMEX HH and Inside FERC West Texas (“IF Waha”) for a portion of its Midland Basin gas production with sales contracts that settle at IF Waha prices; and
•NYMEX HH and Inside FERC Houston Ship Channel (“IF HSC”) for a portion of its South Texas gas production with sales contracts that settle at IF HSC prices.
The Company has also entered into 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, 2022, the Company had commodity derivative contracts outstanding through the fourth quarter of 2025 as summarized in the table below:
Contract Period
Fourth Quarter 2022202320242025
Oil Derivatives (volumes in MBbl and prices in $ per Bbl):
Swaps
NYMEX WTI Volumes1,923 1,190 — — 
Weighted-Average Contract Price$44.58 $45.20 $— $— 
ICE Brent Volumes— 3,650 910 — 
Weighted-Average Contract Price$— $86.50 $85.50 $— 
Collars
NYMEX WTI Volumes1,128 1,331 919 — 
Weighted-Average Floor Price$63.74 $66.01 $75.00 $— 
Weighted-Average Ceiling Price$75.48 $80.79 $81.47 $— 
Basis Swaps
WTI Midland-NYMEX WTI Volumes2,462 3,613 — — 
Weighted-Average Contract Price$1.15 $0.73 $— $— 
ICE Brent-NYMEX WTI Volumes920 — — — 
Weighted-Average Contract Price$(7.78)$— $— $— 
WTI Houston MEH-NYMEX WTI Volumes374 1,234 — — 
Weighted-Average Contract Price$1.25 $1.52 $— $— 
Roll Differential Swaps
NYMEX WTI Volumes3,248 4,968 — — 
Weighted-Average Contract Price$0.21 $0.62 $— $— 
Gas Derivatives (volumes in BBtu and prices in $ per MMBtu):
Swaps
NYMEX HH Volumes2,806 — — — 
Weighted-Average Contract Price$5.50 $— $— $— 
IF HSC Volumes6,982 — — — 
Weighted-Average Contract Price$2.47 $— $— $— 
IF Waha Volumes3,067 900 — — 
Weighted-Average Contract Price$2.22 $3.98 $— $— 
Collars
NYMEX HH Volumes1,908 24,170 — — 
Weighted-Average Floor Price$3.50 $3.74 $— $— 
Weighted-Average Ceiling Price$4.44 $6.32 $— $— 
IF HSC Volumes— 5,085 — — 
Weighted-Average Floor Price$— $4.10 $— $— 
Weighted-Average Ceiling Price$— $5.63 $— $— 
Contract Period (continued)
Fourth Quarter 2022202320242025
Basis Swaps
IF Waha-NYMEX HH Volumes— 7,247 20,958 20,501 
Weighted-Average Contract Price$— $(1.02)$(0.86)$(0.66)
IF HSC-NYMEX HH Volumes— 9,582 — — 
Weighted-Average Contract Price$— $0.07 $— $— 
NGL Derivatives (volumes in MBbl and prices in $ per Bbl):
Swaps
OPIS Propane Mont Belvieu Non-TET Volumes113 — — — 
Weighted-Average Contract Price$35.91 $— $— $— 
Collars
OPIS Propane Mont Belvieu Non-TET Volumes173 — — — 
Weighted-Average Floor Price$24.11 $— $— $— 
Weighted-Average Ceiling Price$28.13 $— $— $— 
Commodity Derivative Contracts Entered Into Subsequent to September 30, 2022
Subsequent to September 30, 2022, the Company entered into the following commodity derivative contracts:
•WTI Midland-NYMEX WTI basis swap contracts for 2023 for a total of 1.7 MMBbl of oil production at a weighted-average contract price of $1.36 per Bbl;
•WTI Houston MEH-NYMEX WTI basis swap contracts for the first and second quarters of 2023 for a total of 0.2 MMBbl of oil production at a weighted-average contract price of $2.11 per Bbl;
•NYMEX HH swap contracts for the second and third quarters of 2023 for a total of 2,890 BBtu of gas production at a weighted-average contract price of $5.08 per MMBtu;
•NYMEX HH collar contracts for the fourth quarter of 2023 and the first quarter of 2024 for a total of 3,423 BBtu of gas production at a weighted-average floor price of $4.27 per MMBtu and a weighted-average ceiling price of $8.52 per MMBtu; and
•IF HSC-NYMEX HH basis swap contract for the second through fourth quarters of 2023 for a total of 2,750 BBtu of gas production at a contract price of $(0.30) per MMBtu.
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 $111.0 million and $320.9 million as of September 30, 2022, and December 31, 2021, respectively.
The following table details the fair value of commodity derivative contracts recorded in the accompanying balance sheets, by category:
As of September 30, 2022As of December 31, 2021
(in thousands)
Derivative assets:
Current assets$42,207 $24,095 
Noncurrent assets36,048 239 
Total derivative assets$78,255 $24,334 
Derivative liabilities:
Current liabilities$174,717 $319,506 
Noncurrent liabilities14,506 25,696 
Total derivative liabilities$189,223 $345,202 
Offsetting of Derivative Assets and Liabilities
As of September 30, 2022, and December 31, 2021, 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,
2022		December 31, 2021September 30,
2022		December 31, 2021
(in thousands)
Gross amounts presented in the accompanying balance sheets$78,255 $24,334 $(189,223)$(345,202)
Amounts not offset in the accompanying balance sheets(56,524)(22,862)56,524 22,862 
Net amounts$21,731 $1,472 $(132,699)$(322,340)
The following table summarizes the commodity components of the derivative settlement loss, and the net derivative (gain) loss line items presented within the accompanying unaudited condensed consolidated statements of cash flows (“accompanying statements of cash flows”) and the accompanying statements of operations, respectively:
For the Three Months Ended September 30,For the Nine Months Ended September 30,
2022202120222021
(in thousands)
Derivative settlement loss:
Oil contracts$120,430 $154,113 $428,811 $344,740 
Gas contracts61,981 35,757 142,369 88,437 
NGL contracts3,888 23,685 23,900 47,085 
Total derivative settlement loss$186,299 $213,555 $595,080 $480,262 
Net derivative (gain) loss:
Oil contracts$(180,300)$68,194 $235,023 $611,224 
Gas contracts47,973 109,802 142,695 220,088 
NGL contracts(5,250)31,150 7,462 92,871 
Total net derivative (gain) loss$(137,577)$209,146 $385,180 $924,183 
Credit Related Contingent Features
As of September 30, 2022, all of the Company’s derivative counterparties were members of the Credit Agreement lender group, with the exception of one counterparty with whom the Company has derivative contracts outstanding through December 31, 2022, that was a part of the lender group under the prior credit agreement. The contracts with this counterparty were entered into while the counterparty was a member of the prior credit agreement lender group. The Company does not enter into derivative contracts with counterparties that are not part of the 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.