XML 32 R20.htm IDEA: XBRL DOCUMENT
v3.20.2

Derivative and Hedging Activities | 9 Months Ended
--- | ---
Sep. 30, 2020
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Derivative and Hedging Activities | Derivative and Hedging Activities We use derivative instruments to reduce our exposure to fluctuations in future commodity prices and to protect our expected operating cash flow against significant market movements or volatility. All of our oil, natural gas and NGL derivative instruments are net settled based on the difference between the fixed-price payment and the floating-price payment, resulting in a net amount due to or from the counterparty. None of our oil, natural gas or NGL derivative instruments were designated for hedge accounting as of September 30, 2020 or December 31, 2019. Pursuant to the RSA associated with our Chapter 11 Cases, we are required to hedge a certain amount of our production with our DIP Credit Facility lenders. See Note 1 for additional details regarding these hedging requirements. Oil, Natural Gas and NGL Derivatives Our oil, natural gas and NGL derivative instruments consist of the following types of instruments:
• | Swaps: We receive a fixed price and pay a floating market price to the counterparty for the hedged commodity. In exchange for higher fixed prices on certain of our swap trades, we may sell call options and call swaptions.
• | Options: We sell, and occasionally buy, call options in exchange for a premium. At the time of settlement, if the market price exceeds the fixed price of the call option, we pay the counterparty the excess on sold call options and we receive the excess on bought call options. If the market price is lower than the fixed price of the call option, no payment is due from either party.
• | Call Swaptions: We sell call swaptions to counterparties in exchange for a premium. Swaptions allow the counterparty, on a specific date, to extend an existing fixed-price swap for a certain period of time or to increase the notional volumes of an existing fixed-price swap.
• | Collars: These instruments contain a fixed floor price (put) and 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 put and the call strike prices, no payments are due from either party. Three-way collars include the sale by us of an additional put option in exchange for a more favorable strike price on the call option. This eliminates the counterparty’s downside exposure below the second put option strike price.
• | Basis Protection Swaps: These instruments are arrangements that guarantee a fixed price differential to NYMEX from a specified delivery point. We receive the fixed price differential and pay the floating market price differential to the counterparty for the hedged commodity.
• | Put spreads: These instruments contain a fixed floor price (bought put) and sub floor price (sold put). If the market price exceeds the bought put strike, we receive the market price. If the market price is between the bought put and sold put strike prices, we receive the bought put price. If the market price falls below the sub floor, we receive the market price plus the difference between the sold put and bought put.
The estimated fair values of our oil, natural gas and NGL derivative instrument assets (liabilities) as of September 30, 2020 and December 31, 2019 are provided below:
|  | September 30, 2020 |  | December 31, 2019
|  | Notional Volume |  | Fair Value |  | Notional Volume |  | Fair Value
|  |  |  | ($ in millions) |  |  |  | ($ in millions)
Oil (mmbbl): |  |  |  |  |  |  |  |
Fixed-price swaps |  | 26 |  |  | $ | (5 | ) |  | 24 |  |  | $ | (7 | )
Collars |  | — |  |  | — |  |  | 2 |  |  | 14 |
Basis protection swaps |  | — |  |  | — |  |  | 8 |  |  | (2 | )
Total oil |  | 26 |  |  | (5 | ) |  | 34 |  |  | 5 |
Natural gas (bcf): |  |  |  |  |  |  |  |
Fixed-price swaps |  | 780 |  |  | (161 | ) |  | 265 |  |  | 125 |
Call options (sold) |  | — |  |  | — |  |  | 22 |  |  | — |
Call swaptions |  | — |  |  | — |  |  | 29 |  |  | (2 | )
Basis protection swaps |  | — |  |  | — |  |  | 30 |  |  | 2 |
Total natural gas |  | 780 |  |  | (161 | ) |  | 346 |  |  | 125 |
Total estimated fair value |  |  |  | $ | (166 | ) |  |  |  | $ | 130 |
We have terminated certain commodity derivative contracts that were previously designated as cash flow hedges for which the original contract months are yet to occur. See further discussion below under Effect of Derivative Instruments – Accumulated Other Comprehensive Income (Loss). Effect of Derivative Instruments – Condensed Consolidated Balance Sheets The following table presents the fair value and location of each classification of derivative instrument included in the condensed consolidated balance sheets as of September 30, 2020 and December 31, 2019 on a gross basis and after same-counterparty netting:
Balance Sheet Classification |  | Gross Fair Value |  | Amounts Netted in the Consolidated Balance Sheets |  | Net Fair Value Presented in the Consolidated Balance Sheets
|  | ($ in millions)
As of September 30, 2020 |  |  |  |  |  |
Commodity Contracts: |  |  |  |  |  |
Short-term derivative asset |  | $ | 12 |  |  | $ | (12 | ) |  | $ | — |
Long-term derivative asset |  | 4 |  |  | (4 | ) |  | — |
Short-term derivative liability |  | (117 | ) |  | 12 |  |  | (105 | )
Long-term derivative liability |  | (65 | ) |  | 4 |  |  | (61 | )
Total derivatives |  | $ | (166 | ) |  | $ | — |  |  | $ | (166 | )
As of December 31, 2019 |  |  |  |  |  |
Commodity Contracts: |  |  |  |  |  |
Short-term derivative asset |  | $ | 174 |  |  | $ | (40 | ) |  | $ | 134 |
Short-term derivative liability |  | (42 | ) |  | 40 |  |  | (2 | )
Long-term derivative liability |  | (2 | ) |  | — |  |  | (2 | )
Total derivatives |  | $ | 130 |  |  | $ | — |  |  | $ | 130 |
Effect of Derivative Instruments – Condensed Consolidated Statements of Operations The components of oil, natural gas and NGL revenues for the Current Quarter, the Prior Quarter, the Current Period and the Prior Period are presented below:
|  | Three Months Ended September 30, |  | Nine Months Ended September 30,
|  | 2020 |  | 2019 |  | 2020 |  | 2019
|  | ($ in millions)
Oil, natural gas and NGL revenues |  | $ | 672 |  |  | $ | 1,003 |  |  | $ | 2,006 |  |  | $ | 3,412 |
Gains (losses) on undesignated oil, natural gas and NGL derivatives |  | (154 | ) |  | 175 |  |  | 597 |  |  | 167 |
Losses on terminated cash flow hedges |  | (7 | ) |  | (8 | ) |  | (24 | ) |  | (26 | )
Total oil, natural gas and NGL revenues |  | $ | 511 |  |  | $ | 1,170 |  |  | $ | 2,579 |  |  | $ | 3,553 |
The components of marketing revenues for the Current Quarter, the Prior Quarter, the Current Period and the Prior Period are presented below:
|  | Three Months Ended September 30, |  | Nine Months Ended September 30,
|  | 2020 |  | 2019 |  | 2020 |  | 2019
|  | ($ in millions)
Marketing revenues |  | $ | 448 |  |  | $ | 889 |  |  | $ | 1,412 |  |  | $ | 3,042 |
Losses on undesignated marketing natural gas derivatives |  | — |  |  | — |  |  | — |  |  | (4 | )
Total marketing revenues |  | $ | 448 |  |  | $ | 889 |  |  | $ | 1,412 |  |  | $ | 3,038 |
Effect of Derivative Instruments – Accumulated Other Comprehensive Income (Loss) A reconciliation of the changes in accumulated other comprehensive income (loss) in our condensed consolidated statements of stockholders’ equity related to our cash flow hedges is presented below:
|  | Three Months Ended September 30,
|  | 2020 |  | 2019
|  | Before Tax |  | After Tax |  | Before Tax |  | After Tax
|  | ($ in millions)
Balance, beginning of period |  | $ | (28 | ) |  | $ | 29 |  |  | $ | (62 | ) |  | $ | (5 | )
Losses reclassified to income |  | 7 |  |  | 7 |  |  | 8 |  |  | 8 |
Balance, end of period |  | $ | (21 | ) |  | $ | 36 |  |  | $ | (54 | ) |  | $ | 3 |
|  | Nine Months Ended September 30,
|  | 2020 |  | 2019
|  | Before Tax |  | After Tax |  | Before Tax |  | After Tax
|  | ($ in millions)
Balance, beginning of period |  | $ | (45 | ) |  | $ | 12 |  |  | $ | (80 | ) |  | $ | (23 | )
Losses reclassified to income |  | 24 |  |  | 24 |  |  | 26 |  |  | 26 |
Balance, end of period |  | $ | (21 | ) |  | $ | 36 |  |  | $ | (54 | ) |  | $ | 3 |
The accumulated other comprehensive loss as of September 30, 2020 represents the net deferred loss associated with commodity derivative contracts that were previously designated as cash flow hedges for which the original contract months are yet to occur. Remaining deferred gain or loss amounts will be recognized in earnings in the month for which the original contract months are to occur. As of September 30, 2020, we expect to transfer approximately $16 million of net loss included in accumulated other comprehensive income (loss) to net income (loss) during the next 12 months. The remaining amounts will be transferred by December 31, 2022. Credit Risk Considerations Our derivative instruments expose us to our counterparties’ credit risk. To mitigate this risk, we enter into derivative contracts only with counterparties that have a high credit rating or are deemed by us to have acceptable credit strength, and are deemed by management to be competent and competitive market-makers, and we attempt to limit our exposure to non-performance by any single counterparty. As of September 30, 2020, our oil, natural gas and NGL derivative instruments were spread among seven counterparties. Hedging Arrangements Certain of our hedging arrangements are with counterparties that are also lenders (or affiliates of lenders) under our DIP Credit Facility. The contracts entered into with these counterparties are secured by the same collateral that secures the pre-petition revolving credit facility. In addition, we enter into bilateral hedging agreements with other counterparties. The counterparties’ and our obligations under the bilateral hedging agreements must be secured by cash or letters of credit to the extent that any mark-to-market amounts owed to us or by us exceed defined thresholds. As of September 30, 2020, we did not have any cash or letters of credit posted as collateral for our commodity derivatives. Fair Value The fair value of our derivatives is based on third-party pricing models, which utilize inputs that are either readily available in the public market, such as oil, natural gas and NGL forward curves and discount rates, or can be corroborated from active markets or broker quotes. These values are compared to the values given by our counterparties for reasonableness. Since oil, natural gas and NGL swaps do not include optionality and therefore generally have no unobservable inputs, they are classified as Level 2. All other derivatives have some level of unobservable input, such as volatility curves, and are therefore classified as Level 3. Derivatives are also subject to the risk that either party to a contract will be unable to meet its obligations. We factor non-performance risk into the valuation of our derivatives using current published credit default swap rates. To date, this has not had a material impact on the values of our derivatives. The following table provides information for financial assets (liabilities) measured at fair value on a recurring basis as of September 30, 2020 and December 31, 2019:
|  | Quoted Prices in Active Markets (Level 1) |  | Significant Other Observable Inputs (Level 2) |  | Significant Unobservable Inputs (Level 3) |  | Total Fair Value
|  |  |  | ($ in millions) |  |
As of September 30, 2020 |  |  |  |  |  |  |  |
Derivative Assets (Liabilities): |  |  |  |  |  |  |  |
Commodity assets |  | $ | — |  |  | $ | 14 |  |  | $ | — |  |  | $ | 14 |
Commodity liabilities |  | — |  |  | (180 | ) |  | — |  |  | (180 | )
Total derivatives |  | $ | — |  |  | $ | (166 | ) |  | $ | — |  |  | $ | (166 | )
As of December 31, 2019 |  |  |  |  |  |  |  |
Derivative Assets (Liabilities): |  |  |  |  |  |  |  |
Commodity assets |  | $ | — |  |  | $ | 160 |  |  | $ | 14 |  |  | $ | 174 |
Commodity liabilities |  | — |  |  | (42 | ) |  | (2 | ) |  | (44 | )
Total derivatives |  | $ | — |  |  | $ | 118 |  |  | $ | 12 |  |  | $ | 130 |
A summary of the changes in the fair values of our financial assets (liabilities) classified as Level 3 during the Current Period and the Prior Period is presented below:
|  | Commodity Derivatives |  | Utica Contingent Consideration
|  | ($ in millions)
Balance, as of January 1, 2020 |  | $ | 12 |  |  | $ | — |
Total gains (losses) (realized/unrealized): |  |  |  |
Included in earnings(a) |  | 3 |  |  | — |
Total purchases, issuances, sales and settlements: |  |  |  |
Settlements |  | (15 | ) |  | — |
Balance, as of September 30, 2020 |  | $ | — |  |  | $ | — |
Balance, as of January 1, 2019 |  | $ | 87 |  |  | $ | 7 |
Total gains (losses) (realized/unrealized): |  |  |  |
Included in earnings(a) |  | (47 | ) |  | (7 | )
Total purchases, issuances, sales and settlements: |  |  |  |
Settlements |  | (8 | ) |  | — |
Balance, as of September 30, 2019 |  | $ | 32 |  |  | $ | — |
___________________________________________
(a) |  |  | Commodity Derivatives |  | Utica Contingent Consideration
|  |  | 2020 |  | 2019 |  | 2020 |  | 2019
|  |  | ($ in millions)
| Total gains (losses) included in earnings for the period |  | $ | 3 |  |  | $ | (47 | ) |  | $ | — |  |  | $ | (7 | )
| Change in unrealized gains (losses) related to assets still held at reporting date |  | $ | — |  |  | $ | (57 | ) |  | $ | — |  |  | $ | (7 | )

X
- References No definition available. + Details
Name: | us-gaap_DerivativeInstrumentsAndHedgingActivitiesDisclosureAbstract
Namespace Prefix: | us-gaap_
Data Type: | xbrli:stringItemType
Balance Type: | na
Period Type: | duration

X
- Definition The entire disclosure for derivative instruments and hedging activities including, but not limited to, risk management strategies, non-hedging derivative instruments, assets, liabilities, revenue and expenses, and methodologies and assumptions used in determining the amounts. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -URI http://asc.fasb.org/topic&trid=2229140 + Details
Name: | us-gaap_DerivativeInstrumentsAndHedgingActivitiesDisclosureTextBlock
Namespace Prefix: | us-gaap_
Data Type: | nonnum:textBlockItemType
Balance Type: | na
Period Type: | duration