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Derivative and Hedging Activities | 12 Months Ended
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Dec. 31, 2022
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Derivative and Hedging Activities |
15. | 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 natural gas and oil 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 open natural gas and oil derivative instruments were designated for hedge accounting as of December 31, 2022 and 2021. As of December 31, 2022, we reclassified $65 million of derivative liabilities (notional volume of 9.6 bcf of natural gas and notional volume of 4.8 mmbbls of oil) to liabilities held for sale, as these open hedge positions will be novated to WildFire Energy I LLC upon completion of the sale of a portion of our Eagle Ford assets. See Note 2 3 for more details. Natural Gas and Oil Derivatives As of December 31, 2022 and 2021, our natural gas and oil derivative instruments consisted 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 swap options. •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 settles below the fixed price of the call option, no payment is due from either party. •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. The estimated fair values of our natural gas and oil derivative instrument assets (liabilities) as of December 31, 2022 and 2021 are provided below:
|  | Successor
|  | December 31, 2022 |  | December 31, 2021
|  | Notional Volume |  | Fair Value |  | Notional Volume |  | Fair Value
Natural gas (Bcf): |  |  |  |  |  |  |  |
Fixed-price swaps |  | 382 |  |  | $ | (494) |  |  | 637 |  |  | $ | (675) |
Collars |  | 721 |  |  | 49 |  |  | 205 |  |  | (82) |
Three-way collars |  | 4 |  |  | (2) |  |  | — |  |  | — |
Call options |  | 18 |  |  | (22) |  |  | 18 |  |  | (17) |
Basis protection swaps |  | 652 |  |  | (32) |  |  | 252 |  |  | (11) |
Total natural gas |  | 1,777 |  |  | (501) |  |  | 1,112 |  |  | (785) |
Oil (MMBbls): |  |  |  |  |  |  |  |
Fixed-price swaps |  | 1 |  |  | (32) |  |  | 13 |  |  | (356) |
Collars |  | 2 |  |  | 7 |  |  | — |  |  | — |
Basis protection swaps |  | 6 |  |  | 1 |  |  | 9 |  |  | (2) |
Total oil |  | 9 |  |  | (24) |  |  | 22 |  |  | (358) |
Total estimated fair value |  |  |  | $ | (525) |  |  |  |  | $ | (1,143) |
In prior periods we had terminated certain commodity derivative contracts that were previously designated as cash flow hedges for which the original contract months were yet to occur. See further discussion below under Effect of Derivative Instruments – Accumulated Other Comprehensive Income (Loss). Effect of Derivative Instruments – Consolidated Balance Sheets The following table presents the fair value and location of each classification of derivative instrument included in the consolidated balance sheets as of December 31, 2022 and 2021 on a gross basis and after same-counterparty netting:
|  | Gross Fair Value(a) |  | Amounts Netted in the Consolidated Balance Sheets |  | Net Fair Value Presented in the Consolidated Balance Sheets
Successor |  |  |  |  |  |
As of December 31, 2022 |  |  |  |  |  |
Commodity Contracts: |  |  |  |  |  |
Short-term derivative asset |  | $ | 200 |  |  | $ | (166) |  |  | $ | 34 |
Long-term derivative asset |  | 87 |  |  | (40) |  |  | 47 |
Short-term derivative liability |  | (598) |  |  | 166 |  |  | (432) |
Long-term derivative liability |  | (214) |  |  | 40 |  |  | (174) |
Total derivatives |  | $ | (525) |  |  | $ | — |  |  | $ | (525) |
As of December 31, 2021 |  |  |  |  |  |
Commodity Contracts: |  |  |  |  |  |
Short-term derivative asset |  | $ | 56 |  |  | $ | (51) |  |  | $ | 5 |
Short-term derivative liability |  | (950) |  |  | 51 |  |  | (899) |
Long-term derivative liability |  | (249) |  |  | — |  |  | (249) |
Total derivatives |  | $ | (1,143) |  |  | $ | — |  |  | $ | (1,143) |
___________________________________________ (a)These financial assets (liabilities) are measured at fair value on a recurring basis utilizing significant other observable inputs; see further discussion on fair value measurements below. 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 natural gas, oil and NGL forward curves and discount rates, or can be corroborated from active markets or broker quotes, and, as such, are classified as Level 2. These values are compared to the values given by our counterparties for reasonableness. 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. 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 are highly rated or deemed by us to have acceptable credit strength and 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 December 31, 2022, our natural gas and oil derivative instruments were spread among 12 counterparties. Hedging Arrangements Certain of our hedging arrangements are with counterparties that were also lenders (or affiliates of lenders) under our New Credit Facility. The contracts entered into with these counterparties are secured by the same collateral that secures the revolving credit facility. The counterparties’ obligations must be secured by cash or letters of credit to the extent that any mark-to-market amounts owed to us exceed defined thresholds. As of December 31, 2022, we did not have any cash or letters of credit posted as collateral for our commodity derivatives. Effect of Derivative Instruments – Accumulated Other Comprehensive Income (Loss) A reconciliation of the changes in accumulated other comprehensive income (loss) in our consolidated statements of stockholders’ equity related to our cash flow hedges is presented below:
|  | Predecessor
|  | Period from January 1, 2021 through February 9, 2021 |  | Year Ended December 31, 2020
|  | Before Tax |  | After Tax |  | Before Tax |  | After Tax
Balance, beginning of period |  | $ | (12) |  |  | $ | 45 |  |  | $ | (45) |  |  | $ | 12 |
Losses reclassified to income(a) |  | 3 |  |  | 3 |  |  | 33 |  |  | 33 |
Fresh start adjustments |  | 9 |  |  | 9 |  |  | — |  |  | — |
Elimination of tax effects |  | — |  |  | (57) |  |  | — |  |  | — |
Balance, end of period |  | $ | — |  |  | $ | — |  |  | $ | (12) |  |  | $ | 45 |
___________________________________________ (a)These losses were included as a component of total natural gas and oil derivatives. Our accumulated other comprehensive loss balance represented 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. The remaining deferred gain or loss amounts were to be recognized in earnings in the month for which the original contract months were to occur. In connection with our adoption of fresh start accounting, we recorded a fair value adjustment to eliminate the accumulated other comprehensive income related to hedging settlements including the elimination of tax effects. See Note 3 for a discussion of fresh start accounting adjustments. We did not have any changes or items impacting other comprehensive income for the 2022 Successor Period or the 2021 Successor Period.

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- 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 https://asc.fasb.org/topic&trid=2229140 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 40 -Section 50 -Paragraph 5 -Subparagraph (f) -URI https://asc.fasb.org/extlink&oid=126731327&loc=d3e90205-114008 + Details
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