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Derivative Activities | 9 Months Ended
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Sep. 30, 2019
Derivative Instruments And Hedging Activities Disclosure [Abstract] |
Derivative Activities | (12) DERIVATIVE ACTIVITIES We use commodity-based derivative contracts to manage exposure to commodity price fluctuations. We do not enter into these arrangements for speculative or trading purposes. We utilize commodity swaps, collars, calls or swaptions to (1) reduce the effect of price volatility of the commodities we produce and sell and (2) support our annual capital budget and expenditure plans. The fair value of our derivative contracts, represented by the estimated amount that would be realized upon termination, based on a comparison of the contract price and a reference price, generally the New York Mercantile Exchange (“NYMEX”) for natural gas and crude oil or Mont Belvieu for NGLs, approximated a net gain of $152.3 million at September 30, 2019. These contracts expire monthly through December 2021. The following table sets forth our commodity-based derivative volumes by year as of September 30, 2019, excluding our basis and freight swaps which are discussed separately below:
Period |  | Contract Type |  | Volume Hedged |  | Weighted Average Hedge Price
Natural Gas |  |  |  |  |  |  |  |
2019 |  | Swaps |  | 1,271,739 Mmbtu/day |  |  | $ 2.82 |
2020 |  | Swaps |  | 674,208 Mmbtu/day |  |  | $ 2.64 |
2019 |  | Swaptions |  | 140,000 Mmbtu/day |  |  | $ 2.81 (1) |
2020 |  | Swaptions |  | 147,568 Mmbtu/day |  |  | $ 2.77 (1) |
2021 |  | Swaptions |  | 30,000 Mmbtu/day |  |  | $ 2.70 (1) |
Crude Oil |  |  |  |  |  |  |  |
2019 |  | Swaps |  | 9,168 bbls/day |  |  | $ 56.11 |
2020 |  | Swaps |  | 6,738 bbls/day |  |  | $ 58.53 |
2019 |  | Collars |  | 1,000 bbls/day |  |  | $ 63.00 − $ 73.00 |
2020 |  | Swaptions |  | 1,000 bbls/day |  |  | $ 57.00 (2) |
2021 |  | Swaptions |  | 1,000 bbls/day |  |  | $ 55.00 (2) |
2020 |  | Calls |  | 500 bbls/day |  |  | $ 59.00 |
NGLs (C3-Propane) |  |  |  |  |  |  |  |
2019 |  | Swaps |  | 500 bbls/day |  |  | $ 0.53/gallon |
NGLs (NC4-Normal Butane) |  |  |  |  |  |  |  |
2019 |  | Swaps |  | 1,000 bbls/day |  |  | $ 0.60/gallon |
NGLs (iC4-Iso Butane) |  |  |  |  |  |  |  |
2019 |  | Swaps |  | 500 bbls/day |  |  | $ 0.75/gallon |
NGLs (C5-Natural Gasoline) |  |  |  |  |  |  |  |
2019 |  | Swaps |  | 5,500 bbls/day |  |  | $ 1.30/gallon |
(1) | Contains a combined derivative instrument consisting of a fixed price swap and a sold option to extend or double the volumes. We have swaps in place for 2019 for 140,000 Mmbtu/day on which the counterparty can elect to extend the contract through December 2020 at a weighted average price of $2.81. In 2020, if the counterparty elects to double the volume, we would have additional swaps in place for 110,000 Mmbtu/day at a weighted average price of $2.78. We also have swaps in place for 2020 for 50,000 Mmbtu/day on which the counterparty can elect to extend the contract through December 2021 at a weighted average price of $2.75. In 2021, if the counterparty elects to double the volume, we would have additional swaps in place for 30,000 Mmbtu/day at a weighted average price of $2.70.
(2) Contains a combined derivative instrument consisting of a fixed price swap and a sold option to extend or double the volumes. We have swaps in place for 2020 for 1,000 bbls/day on which the counterparty can elect to extend the contract through 2021 at a weighted average price of $57.00. In 2021, if the counterparty elects to double the volume, we would have additional swaps in place for 1,000 bbls/day at a weighted average price of $55.00. Every derivative instrument is required to be recorded on the balance sheet as either an asset or a liability measured at its fair value. We recognize all changes in fair value of these derivatives as earnings in derivative fair value income or loss in the periods in which they occur. Basis Swap Contracts In addition to the swaps, collars, calls and swaptions described above, at September 30, 2019, we had natural gas basis swap contracts which lock in the differential between NYMEX Henry Hub and certain of our physical pricing indices. These contracts settle monthly through December 2021 and include a total volume of 129,765,000 Mmbtu. The fair value of these contracts was a gain of $4.6 million at September 30, 2019. At September 30, 2019, we also had propane spread swap contracts which lock in the differential between Mont Belvieu and international propane indices. The contracts settle monthly in October through December of 2019 and monthly in 2020 and include a total volume of 1,875,000 barrels. The fair value of these contracts was a loss of $3.3 million at September 30, 2019. Freight Swap Contracts In connection with our international propane sales, we utilize propane swaps. To further hedge our propane price, at September 30, 2019, we had freight swap contracts on the Baltic Exchange which lock in the freight rate for a specific trade route. These contracts settle monthly and cover 10,000 metric tons per month through December 2019, 4,000 metric tons per month in 2020 and 5,000 metric tons per month in 2021, with the fair value of these contracts equal to a gain of $1.4 million at September 30, 2019. Derivative Assets and Liabilities The combined fair value of derivatives included in the accompanying consolidated balance sheets as of September 30, 2019 and December 31, 2018 is summarized below. The assets and liabilities are netted where derivatives with both gain and loss positions are held by a single counterparty and we have master netting arrangements. The tables below provide additional information relating to our master netting arrangements with our derivative counterparties (in thousands):
|  |  | September 30, 2019 |
|  |  | Gross Amounts of Recognized Assets |  |  | Gross Amounts Offset in the Balance Sheet |  |  | Net Amounts of Assets Presented in the Balance Sheet |
Derivative assets: |  |  |  |  |  |  |  |  |  |  |  |  |
Natural gas | –swaps |  | $ | 102,076 |  |  | $ | (1,106 | ) |  | $ | 100,970 |
| –swaptions |  |  | 27,309 |  |  |  | (2,107 | ) |  |  | 25,202 |
| –basis swaps |  |  | 6,695 |  |  |  | (2,108 | ) |  |  | 4,587 |
Crude oil | –swaps |  |  | 19,012 |  |  |  | (602 | ) |  |  | 18,410 |
| –swaptions |  |  | 2,896 |  |  |  | (1,382 | ) |  |  | 1,514 |
| –calls |  |  | — |  |  |  | (224 | ) |  |  | (224 | )
| −collars |  |  | 869 |  |  |  | — |  |  |  | 869 |
NGLs | –C3 propane spread swaps |  |  | 17,816 |  |  |  | (17,816 | ) |  |  | — |
| –C3 propane swaps |  |  | 132 |  |  |  | — |  |  |  | 132 |
| –iC4 iso butane swaps |  |  | — |  |  |  | (2 | ) |  |  | (2 | )
| –NC4 normal butane swaps |  |  | 160 |  |  |  | — |  |  |  | 160 |
| −C5 natural gasoline swaps |  |  | 5,229 |  |  |  | — |  |  |  | 5,229 |
Freight | −swaps |  |  | 1,439 |  |  |  | (1,439 | ) |  |  | — |
|  |  | $ | 183,633 |  |  | $ | (26,786 | ) |  | $ | 156,847 |
|  |  | September 30, 2019 |
|  |  | Gross Amounts of Recognized (Liabilities) |  |  | Gross Amounts Offset in the Balance Sheet |  |  | Net Amounts of (Liabilities) Presented in the Balance Sheet |
Derivative (liabilities): |  |  |  |  |  |  |  |  |  |  |  |  |
Natural gas | –swaps |  | $ | (1,106 | ) |  | $ | 1,106 |  |  | $ | — |
| –swaptions |  |  | (2,107 | ) |  |  | 2,107 |  |  |  | — |
| –basis swaps |  |  | (2,075 | ) |  |  | 2,108 |  |  |  | 33 |
Crude oil | –swaps |  |  | (602 | ) |  |  | 602 |  |  |  | — |
| –swaptions |  |  | (1,382 | ) |  |  | 1,382 |  |  |  | — |
| –calls |  |  | (224 | ) |  |  | 224 |  |  |  | — |
NGLs | –C3 propane spread swaps |  |  | (21,105 | ) |  |  | 17,816 |  |  |  | (3,289 | )
| –iC4 iso butane swaps |  |  | (2 | ) |  |  | 2 |  |  |  | — |
Freight | –swaps |  |  | — |  |  |  | 1,439 |  |  |  | 1,439 |
|  |  | $ | (28,603 | ) |  | $ | 26,786 |  |  | $ | (1,817 | )
|  |  | December 31, 2018 |
|  |  | Gross Amounts of Recognized Assets |  |  | Gross Amounts Offset in the Balance Sheet |  |  | Net Amounts of Assets Presented in the Balance Sheet |
Derivative assets: |  |  |  |  |  |  |  |  |  |  |  |  |
Natural gas | –swaps |  | $ | 20,834 |  |  | $ | (11,748 | ) |  | $ | 9,086 |
| –swaptions |  |  | 5,200 |  |  |  | (3,883 | ) |  |  | 1,317 |
| –basis swaps |  |  | 6,468 |  |  |  | (2,822 | ) |  |  | 3,646 |
Crude oil | –swaps |  |  | 26,481 |  |  |  | (651 | ) |  |  | 25,830 |
| –collars |  |  | 5,945 |  |  |  | (707 | ) |  |  | 5,238 |
NGLs | –C3 propane swaps |  |  | 18,719 |  |  |  | (589 | ) |  |  | 18,130 |
| –C3 propane collars |  |  | 8,538 |  |  |  | — |  |  |  | 8,538 |
| –C3 propane spread swaps |  |  | 8,984 |  |  |  | (8,868 | ) |  |  | 116 |
| –NC4 normal butane swaps |  |  | 4,084 |  |  |  | — |  |  |  | 4,084 |
| –C5 natural gasoline swaps |  |  | 17,371 |  |  |  | — |  |  |  | 17,371 |
Freight | –swaps |  |  | — |  |  |  | (561 | ) |  |  | (561 | )
|  |  | $ | 122,624 |  |  | $ | (29,829 | ) |  | $ | 92,795 |
|  |  | December 31, 2018 |
|  |  | Gross Amounts of Recognized (Liabilities) |  |  | Gross Amounts Offset in the Balance Sheet |  |  | Net Amounts of (Liabilities) Presented in the Balance Sheet |
Derivative (liabilities): |  |  |  |  |  |  |  |  |  |  |  |  |
Natural gas | –swaps |  | $ | (18,332 | ) |  | $ | 11,748 |  |  | $ | (6,584 | )
| –swaptions |  |  | (7,972 | ) |  |  | 3,883 |  |  |  | (4,089 | )
| –basis swaps |  |  | (1,702 | ) |  |  | 2,822 |  |  |  | 1,120 |
Crude oil | –swaps |  |  | — |  |  |  | 651 |  |  |  | 651 |
| –collars |  |  | — |  |  |  | 707 |  |  |  | 707 |
NGLs | –C3 propane swaps |  |  | — |  |  |  | 589 |  |  |  | 589 |
| –C3 propane spread swaps |  |  | (8,868 | ) |  |  | 8,868 |  |  |  | — |
Freight | –swaps |  |  | (561 | ) |  |  | 561 |  |  |  | — |
|  |  | $ | (37,435 | ) |  | $ | 29,829 |  |  | $ | (7,606 | )
The effects of our derivatives on our consolidated statements of operations are summarized below (in thousands):
| Derivative Fair Value Income (Loss) |
|  | Three Months Ended September 30, |  |  |  | Nine Months Ended September 30, |
| 2019 |  |  |  | 2018 |  |  |  | 2019 |  |  |  | 2018 |
Commodity swaps | $ | 60,090 |  |  | $ | (35,868 | ) |  | $ | 161,799 |  |  | $ | (143,598 | )
Swaptions |  | 10,358 |  |  |  | 7,093 |  |  |  | 39,451 |  |  |  | 4,100 |
Collars |  | 356 |  |  |  | (3,965 | ) |  |  | (3,590 | ) |  |  | (4,031 | )
Calls |  | (224 | ) |  |  | 197 |  |  |  | (224 | ) |  |  | 526 |
Basis swaps |  | 3,448 |  |  |  | (2,350 | ) |  |  | 7,801 |  |  |  | (9,043 | )
Freight swaps |  | 648 |  |  |  | 302 |  |  |  | 2,953 |  |  |  | 156 |
Total | $ | 74,676 |  |  | $ | (34,591 | ) |  | $ | 208,190 |  |  | $ | (151,890 | )

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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 http://asc.fasb.org/topic&trid=2229140 + Details
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