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Derivative Activities | 9 Months Ended
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Sep. 30, 2021
Derivative Instruments And Hedging Activities Disclosure [Abstract] |
Derivative Activities | (11) 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, calls, collars, three-way collars 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 loss of $776.1 million at September 30, 2021. These contracts expire monthly through December 2023. The following table sets forth our commodity-based derivative volumes by year as of September 30, 2021, excluding our basis and freight swaps and divestiture contingent consideration which are discussed separately below:
Period |  | Contract Type |  | Volume Hedged |  | Weighted Average Hedge Price
|  |  |  |  |  | Swap |  | Sold Put |  | Floor |  | Ceiling
Natural Gas (1) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
2021 |  | Swaps |  | 583,152 Mmbtu/day |  | $ | 2.84 |  |  |  |  |  |  |  |
2021 |  | Collars |  | 227,391 Mmbtu/day |  |  |  |  |  |  | $ | 2.87 |  | $ | 3.42
2021 |  | Three-way Collars |  | 339,457 Mmbtu/day |  |  |  | $ | 2.26 |  | $ | 2.62 |  | $ | 3.04
2022 |  | Swaps |  | 382,329 Mmbtu/day |  | $ | 3.11 |  |  |  |  |  |  |  |
2022 |  | Collars |  | 213,438 Mmbtu/day |  |  |  |  |  |  | $ | 3.26 |  | $ | 3.70
2022 |  | Three-way Collars |  | 251,781 Mmbtu/day |  |  |  | $ | 2.37 |  | $ | 3.03 |  | $ | 3.77
January - March 2022 |  | Calls |  | 80,000 Mmbtu/day |  |  |  |  |  |  |  |  |  | $ | 6.02
2023 |  | Swaps |  | 60,000 Mmbtu/day |  | $ | 3.27 |  |  |  |  |  |  |  |
Crude Oil |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
2021 |  | Swaps |  | 7,500 bbls/day |  | $ | 56.92 |  |  |  |  |  |  |  |
2022 |  | Swaps |  | 5,811 bbls/day |  | $ | 59.59 |  |  |  |  |  |  |  |
2023 |  | Swaps |  | 500 bbls/day |  | $ | 63.50 |  |  |  |  |  |  |  |
NGLs (C3-Propane) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
2021 |  | Swaps |  | 6,000 bbls/day |  | $ | 1.17/gallon |  |  |  |  |  |  |  |
2021 |  | Collars |  | 4,000 bbls/day |  |  |  |  |  |  | $ | 1.00/gallon |  | $ | $1.20/gallon
NGLs (NC4-Normal Butane) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
2021 |  | Swaps |  | 2,663 bbls/day |  | $ | 1.17/gallon |  |  |  |  |  |  |  |
2021 |  | Collars |  | 2,000 bbls/day |  |  |  |  |  |  | $ | 1.00/gallon |  | $ | 1.20/gallon
NGLs (C5-Natural Gasoline) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
2021 |  | Swaps |  | 2,000 bbls/day |  | $ | 1.41/gallon |  |  |  |  |  |  |  |
2021 |  | Collars |  | 3,000 bbls/day |  |  |  |  |  |  | $ | 1.35/gallon |  | $ | 1.55/gallon
January - March 2022 |  | Swaps |  | 2,656 bbls/day |  | $ | 1.59/gallon |  |  |  |  |  |  |  |
January - March 2022 |  | Collars |  | 2,000 bbls/day |  |  |  |  |  |  | $ | 1.45/gallon |  | $ | 1.60/gallon
(1) | We also sold natural gas call swaptions of 80,000 Mmbtu/day for 2022 at a weighted average price of $2.80 and 70,000 Mmbtu/day for 2023 at a weighted average price of $3.04.
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 and swaptions described above, at September 30, 2021, 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 2024 and include a total volume of 204,967,500 Mmbtu. The fair value of these contracts was a gain of $8.5 million at September 30, 2021. At September 30, 2021, we also had propane spread swap contracts which lock in the differential between Mont Belvieu and international propane indices. The contracts settle monthly through 2022. The fair value of these contracts was a gain of $394,000 at September 30, 2021. Freight Swap Contracts In connection with our international propane sales, we utilize propane swaps. To further hedge our propane price, at September 30, 2021, 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 12,000 metric tons for the remainder of 2021 and cover 7,000 metric tons for first quarter 2022. The fair value of these contracts equal to a loss of $26,000 at September 30, 2021. Divestiture Contingent Consideration In addition to the derivatives described above, our right to receive contingent consideration in conjunction with the sale of our North Louisiana assets was determined to be a derivative financial instrument that is not designated as a hedging instrument. The remaining contingent consideration of up to $75.0 million is based on future achievement of natural gas and oil prices based on published indexes and realized NGLs prices of the buyer for the years 2021, 2022 and 2023. All changes in the fair value are recognized as a gain or loss in earnings in the period they occur in derivative fair value income or loss in our consolidated statements of operations. For first nine months 2021, this fair value has increased $34.3 million for a fair value of $50.2 million as of September 30, 2021. Derivative Assets and Liabilities The combined fair value of derivatives included in the accompanying consolidated balance sheets as of September 30, 2021 and December 31, 2020 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, 2021 |
|  |  | 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 |  | $ | 5,574 |  |  | $ | (5,574 | ) |  | $ | — |
| –collars |  |  | 193 |  |  |  | (193 | ) |  |  | — |
| –three-way collars |  |  | 2 |  |  |  | (2 | ) |  |  | — |
| –basis swaps |  |  | 15,633 |  |  |  | (12,187 | ) |  |  | 3,446 |
Crude oil | –swaps |  |  | 10 |  |  |  | (10 | ) |  |  | — |
NGLs | –C3 propane spread swaps |  |  | 8,367 |  |  |  | (8,367 | ) |  |  | — |
| −C5 natural gasoline swaps |  |  | 17 |  |  |  | (17 | ) |  |  | — |
Freight | −swaps |  |  | 27 |  |  |  | (30 | ) |  |  | (3 | )
Divestiture contingent consideration |  |  | 50,220 |  |  |  | — |  |  |  | 50,220 |
|  |  | $ | 80,043 |  |  | $ | (26,380 | ) |  | $ | 53,663 |
|  |  | September 30, 2021 |
|  |  | 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 |  | $ | (359,243 | ) |  | $ | 5,574 |  |  | $ | (353,669 | )
| –swaptions |  |  | (60,132 | ) |  |  | — |  |  |  | (60,132 | )
| –collars |  |  | (93,418 | ) |  |  | 193 |  |  |  | (93,225 | )
| –three-way collars |  |  | (200,479 | ) |  |  | 2 |  |  |  | (200,477 | )
| –calls |  |  | (10,018 | ) |  |  | — |  |  |  | (10,018 | )
| –basis swaps |  |  | (7,160 | ) |  |  | 12,187 |  |  |  | 5,027 |
Crude oil | –swaps |  |  | (34,274 | ) |  |  | 10 |  |  |  | (34,264 | )
NGLs | –C3 propane spread swaps |  |  | (7,973 | ) |  |  | 8,367 |  |  |  | 394 |
| –C3 propane swaps |  |  | (6,140 | ) |  |  | — |  |  |  | (6,140 | )
| –C3 collars |  |  | (3,787 | ) |  |  | — |  |  |  | (3,787 | )
| –NC4 butane swaps |  |  | (3,991 | ) |  |  | — |  |  |  | (3,991 | )
| –NC4 butane collars |  |  | (2,797 | ) |  |  | — |  |  |  | (2,797 | )
| –C5 natural gasoline swaps |  |  | (3,908 | ) |  |  | 17 |  |  |  | (3,891 | )
| –C5 natural gasoline collars |  |  | (3,728 | ) |  |  | — |  |  |  | (3,728 | )
Freight | –swaps |  |  | (53 | ) |  |  | 30 |  |  |  | (23 | )
|  |  | $ | (797,101 | ) |  | $ | 26,380 |  |  | $ | (770,721 | )
|  |  | December 31, 2020 |
|  |  | 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 |  | $ | 33,559 |  |  | $ | (16,821 | ) |  | $ | 16,738 |
| –collars |  |  | 7,016 |  |  |  | (2,329 | ) |  |  | 4,687 |
| –three-way collars |  |  | 535 |  |  |  | (6,139 | ) |  |  | (5,604 | )
| –basis swaps |  |  | 7,894 |  |  |  | (3,502 | ) |  |  | 4,392 |
Crude oil | –swaps |  |  | 2,465 |  |  |  | (829 | ) |  |  | 1,636 |
NGLs | –C3 propane spread swaps |  |  | 4,863 |  |  |  | (4,863 | ) |  |  | — |
| –C3 propane collars |  |  | — |  |  |  | (107 | ) |  |  | (107 | )
Freight | –swaps |  |  | 2,310 |  |  |  | — |  |  |  | 2,310 |
Divestiture contingent consideration |  |  | 15,960 |  |  |  | — |  |  |  | 15,960 |
|  |  | $ | 74,602 |  |  | $ | (34,590 | ) |  | $ | 40,012 |
|  |  | December 31, 2020 |
|  |  | 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 |  | $ | (10,120 | ) |  | $ | 16,821 |  |  | $ | 6,701 |
| –swaptions |  |  | (9,803 | ) |  |  | — |  |  |  | (9,803 | )
| –collars |  |  | — |  |  |  | 2,329 |  |  |  | 2,329 |
| –three-way collars |  |  | (18,353 | ) |  |  | 6,139 |  |  |  | (12,214 | )
| –basis swaps |  |  | (4,197 | ) |  |  | 3,502 |  |  |  | (695 | )
Crude oil | –swaps |  |  | (5,471 | ) |  |  | 829 |  |  |  | (4,642 | )
NGLs | –C3 propane spread swaps |  |  | (4,069 | ) |  |  | 4,863 |  |  |  | 794 |
| –C3 propane swaps |  |  | (8,243 | ) |  |  | — |  |  |  | (8,243 | )
| –C3 propane collars |  |  | (3,086 | ) |  |  | 107 |  |  |  | (2,979 | )
| –C5 natural gasoline swaps |  |  | (4,897 | ) |  |  | — |  |  |  | (4,897 | )
| –C5 natural gasoline calls |  |  | (546 | ) |  |  | — |  |  |  | (546 | )
| –NC4 butane swaps |  |  | (651 | ) |  |  | — |  |  |  | (651 | )
| –NC4 butane collars |  |  | (401 | ) |  |  | — |  |  |  | (401 | )
Freight | –swaps |  |  | (1,206 | ) |  |  | — |  |  |  | (1,206 | )
|  |  | $ | (71,043 | ) |  | $ | 34,590 |  |  | $ | (36,453 | )
The effects of our derivatives on our consolidated statements of operations are summarized below (in thousands):
|  | Derivative Fair Value (Loss) Income |
|  | Three Months Ended September 30, |  |  | Nine Months Ended September 30, |
|  | 2021 |  |  | 2020 |  |  | 2021 |  |  | 2020 |
Commodity swaps |  | $ | (332,855 | ) |  | $ | (91,425 | ) |  | $ | (558,186 | ) |  | $ | 142,413 |
Swaptions |  |  | (33,718 | ) |  |  | (14,166 | ) |  |  | (50,329 | ) |  |  | (15,520 | )
Three-way collars |  |  | (173,344 | ) |  |  | (20,705 | ) |  |  | (226,176 | ) |  |  | (38,267 | )
Collars |  |  | (106,340 | ) |  |  | (16,893 | ) |  |  | (158,562 | ) |  |  | (14,336 | )
Calls |  |  | (10,018 | ) |  |  | (255 | ) |  |  | (10,793 | ) |  |  | (12 | )
Basis swaps |  |  | (8,469 | ) |  |  | 15,587 |  |  |  | 11,054 |  |  |  | 31,750 |
Freight swaps |  |  | (346 | ) |  |  | 2,737 |  |  |  | (1,050 | ) |  |  | (4,276 | )
Divestiture contingent consideration |  |  | 12,870 |  |  |  | 430 |  |  |  | 34,260 |  |  |  | 430 |
Total |  | $ | (652,220 | ) |  | $ | (124,690 | ) |  | $ | (959,782 | ) |  | $ | 102,182 |

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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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