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Derivative and Hedging Activities | 3 Months Ended
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Mar. 31, 2024
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Derivative and Hedging Activities |
11. | 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. These commodity contract derivative financial instruments include financial price swaps, collars and basis protection swaps. All of our commodity contract 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. We do not intend to hold or issue derivative financial instruments for speculative trading purposes and have elected not to designate any of our derivative instruments for hedge accounting treatment. Contingent Consideration Arrangement In November 2023, we sold the final portion of our Eagle Ford assets to SilverBow. As part of the divestiture agreement, SilverBow agreed to pay Chesapeake an additional contingent payment of $25 million should WTI NYMEX prices average between $75 and $80 per barrel or $50 million should WTI NYMEX prices average above $80 per barrel during the year following the close of the transaction. All changes in fair value are recognized as a gain or loss in earnings in the period they occur within natural gas and oil derivatives in our condensed consolidated statements of operations. During the Current Quarter, we recorded $21 million of unrealized gains related to the contingent consideration arrangement. The estimated fair values of our natural gas and oil derivative instrument assets (liabilities) as of March 31, 2024 and December 31, 2023 are provided below:
|  | March 31, 2024 |  | December 31, 2023
|  | Notional Volume |  | Fair Value |  | Notional Volume |  | Fair Value
Natural gas (Bcf): |  |  |  |  |  |  |  |
Fixed-price swaps |  | 314 |  |  | $ | 199 |  |  | 343 |  |  | $ | 188 |
Collars |  | 511 |  |  | 451 |  |  | 558 |  |  | 497 |
Basis protection swaps |  | 489 |  |  | (51) |  |  | 578 |  |  | 2 |
Total natural gas |  | 1,314 |  |  | 599 |  |  | 1,479 |  |  | 687 |
Contingent Consideration: |  |  |  |  |  |  |  |
Eagle Ford divestiture |  |  |  | 33 |  |  |  |  | 12 |
Total estimated fair value |  |  |  | $ | 632 |  |  |  |  | $ | 699 |
The following table presents the fair value and location of each classification of derivative instrument included in the condensed consolidated balance sheets as of March 31, 2024 and December 31, 2023 on a gross basis and after same-counterparty netting:
|  | Gross Fair Value(a) |  | Amounts Netted in the Condensed Consolidated Balance Sheets |  | Net Fair Value Presented in the Condensed Consolidated Balance Sheets
As of March 31, 2024 |  |  |  |  |  |
Commodity Contracts: |  |  |  |  |  |
Short-term derivative asset |  | $ | 630 |  |  | $ | (71) |  |  | $ | 559 |
Long-term derivative asset |  | 62 |  |  | (16) |  |  | 46 |
Short-term derivative liability |  | (76) |  |  | 71 |  |  | (5) |
Long-term derivative liability |  | (17) |  |  | 16 |  |  | (1) |
Contingent Consideration: |  |  |  |  |  |
Short-term derivative asset |  | 33 |  |  | — |  |  | 33 |
Total derivatives |  | $ | 632 |  |  | $ | — |  |  | $ | 632 |
As of December 31, 2023 |  |  |  |  |  |
Commodity Contracts: |  |  |  |  |  |
Short-term derivative asset |  | $ | 661 |  |  | $ | (36) |  |  | $ | 625 |
Long-term derivative asset |  | 101 |  |  | (27) |  |  | 74 |
Short-term derivative liability |  | (39) |  |  | 36 |  |  | (3) |
Long-term derivative liability |  | (36) |  |  | 27 |  |  | (9) |
Contingent Consideration: |  |  |  |  |  |
Short-term derivative asset |  | 12 |  |  | — |  |  | 12 |
Total derivatives |  | $ | 699 |  |  | $ | — |  |  | $ | 699 |
___________________________________________ (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 commodity 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. The valuation of the contingent consideration is based on an option pricing model using significant Level 2 inputs that include quoted future commodity prices based on active markets. Credit Risk Considerations Our derivative instruments expose us to our counterparties’ credit risk. To mitigate this risk, we only enter into commodity contracts derivatives 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 March 31, 2024, our commodity contract derivative instruments were spread among 17 counterparties. Hedging Arrangements Certain of our hedging arrangements are with counterparties that were also lenders (or affiliates of lenders) under our 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 March 31, 2024, we did not have any cash or letters of credit posted as collateral for our commodity derivatives.

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